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ECB, BoJ and Fed Signal the End of Monetary Policy Effectiveness

ECB, BoJ and Fed Signal the End of Monetary Policy Effectiveness

John Kicklighter, Chief Strategist

Talking Points:

  • The ECB's most recent wave of stimulus fell flat in markets, while previous efforts seem to have paid limited dividends
  • Central banks pursued massive QE programs, a cut to benchmark rates, the introduction of negative rates and more
  • Accommodative monetary policy may have already reached its natural lower bound, necessitating a shift in approach

See how retail traders are positioning with Monetary Policy views on DailyFX using FXCM's SSI figures.

The markets are not necessarily the target of monetary policy, but they are timely gauges for investors' confidence in the efforts' efficacy. Following the ECB's incredible upgrade to its program this past session, its previous upgrade in December and the BoJ's adoption of negative rates in February; we have seen clear departure in market response to the traditional procedure of stimulus lifting 'animal spirits'. Central banks losing their ability to lift the markets' confidence is not a small loss - nor explicitly speculative. Effective implementation of monetary policy is in no small part dependent on the authorities' credibility. Yet, furthermore, we see the limitations showing through in economic conditions. Growth, inflation, employment and other vital measures of economic health have shown a waning response to subsequent efforts. This shifts change the trading landscape in the FX market and leverage the risk to speculative appetite in the broader financial system. We discuss the changing tides of monetary policy and the investment adjustments to consider in today's Strategy Video.

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