This week we held our monthly Investment Committee meeting. Although only little has changed with regard to the overall economic picture, we were having a few interesting discussions that we would now like to share with you.
The most important central bank in the world, the Federal Reserve of the USA, has announced a historic decision as a result of its FOMC meeting on 20 September: the central bank balance sheet, hugely inflated in the wake of the bond purchase programme, will be gradually reduced from October onwards. Generally speaking this is a good sign, as the decision can be seen as further testimony to the normalisation of the economic environment.
Author: Felix Dornaus, Senior Fundmanager
The Trump administration should be keeping the financial markets on their toes in the coming weeks. Yet again, the issue is the government debt which will soon reach its statutory maximum.
Making sense of it all
I will be upfront about it: to me, the Taylor rule is still a helpful tool to assess the future monetary policy of the US central bank. However, it should not be used as blueprint without thinking it through. Instead, it should be seen as heuristic tool that helps structure one’s analysis.
Taylor Rule – precise formula, vague Inputs
Since 2008, the key-lending rates in the USA seem to have been significantly too low as measured by the Taylor rule. With some economists blaming Alan Greenspan’s loose monetary policy as partially responsible for the financial crisis of 2008, the question is whether we are in for a déjà-vu.
The US central bank has embarked on a cycle of interest rate hikes. The question is: by how much will the interest rates increase still, and at what point will it reach a level detrimental to the economy, where equities should be regrouped into asset classes less sensitive to the economic cycle?
We have seen a number of trend reversals this year, one of them being the end of the negative growth surprises. The forecast of economic growth and inflation are currently not subject to downwards revisions any longer. Read more