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Zombie alert! Fed and ECB's next moves could expose the living dead

5 1 2
14.06.2018

When the history of the global economy post-crisis is written, this week might be seen to have provided a significant moment - and one not necessarily universally positive.

At face value, the US Federal Reserve board's decision to raise the federal funds rate by 25 basis points -- the second increase this year and the sixth since late 2015 – is an endorsement of the strength of the US economy and the progress in normalising US monetary policy.

The Fed flagged another rate rise later this year and, by a slender majority, indicated there might even be a fourth. With US GDP growth pushing towards 3 per cent, the unemployment rate falling below 4 per cent and inflation around 2 per cent it signalled the trajectory of rates is steepening.

Has the Fed fully factored in the "sugar hit" from Trump's big spender policies?

There is a question, however, if the US central bank is fully factoring in the impact of the "sugar hit" to the economy coming from Trump’s $US1.5 trillion ($1.9 trillion) worth of tax cuts and $US300 billion increase in spending.

The risk for the US is that the Fed is forced to raise rates faster and further than it envisages even as its pre-programmed winding down of a balance sheet swollen by its $US3.6 trillion of bond and mortgage-buying in the post-crisis period sucks liquidity out of the economy.

The increased borrowing........

© Brisbane Times