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Why More Monetary Policy Won't Work but Central Banks Keep It

Why More Monetary Policy Won't Work but Central Banks Keep It

John Kicklighter, Chief Strategist

Talking Points:

  • Global monetary policy has been pushed to dovish extremes between zero/negative interest rates and large QE efforts
  • The limitations of more easing has been seen in limited market response and shortfalls in influence over inflation
  • Further easing falls short as the issues are global and out of central banks' influence, but that won't stop them

See the DailyFX Analysts' 2Q forecasts for the Dollar, Euro, Pound, Equities and Gold as well as our favorite 2016 trading opportunities in the DailyFX Trading Guides page.

There are limitations to monetary policy that are growing increasingly obvious to officials and market participants. The upgrades from the ECB and BoJ are the most distinct evidence of this shortfall given the tepid - even contradictory - response. Beyond the market's interpretation and even speculative opportunism, the efforts of the world's largest central banks are outside of their sphere of influence as the issues are global rather than local. In particular, the effective deployment of capital to productive means are curbed by limited returns. And, the most direct target nowadays in inflation is dictated by commodity prices which are little influenced by a local central bank's efforts. We discuss why monetary policy's influence is diminishing, what that means for markets and why it won't stop central banks in today's Strategy Video.

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