The power of monatary policy tranmission has weekend post crisis and have failure suffisantly boost the economy. A prolonged period of low and negative interest rates may lead ti tighter credit conditions, but also make worse the trade-off between price and financial stability as higlighted back in january by former Bank of Governor, Christian Noyer. Societe Generale forcasted an exceptionally slow pace of thightening with the next rate hike likely in December this year, two in 2017 and a peak fed funds rate of 1.5% in this cycle.
CAN GOVERNMETS DO MORE ?
To boost the demand in the short term, tax cuts or spending initiativea are required. If those are successful, the next challange for central banks would be to ensure a stable return to higher interest rates.
Euro area :
The euro area consumer is expected dig into savings and spend. Moreover, we look for a significant pick-up in residential investment with the revival of the euro area consumer. Inflation could break above 2% depending on oil price base effects.
No more easing : the SG EXPECTATION is that the BoJ will not announce further policy accommodation unless USD/JPY head durably and significantly below 100.