Central banks’ strategies to cement dovish bias

In Short

The new US administration has embarked on an ambitious plan to mitigate inequalities and spur growth via a relaunch of public investment.
Market Outlook

Highlights:

  • Fears of secular stagnation and a greater focus on inequality are leading to a new fiscal and monetary policy era, especially in the US.
  • The new Fed strategy is geared to full employment and will tolerate higher realised inflation. Some aspects or metrics remain rather
    vague, calling for a close monitoring of the labour market and inflation expectations. We present new tools to monitor the evolution of both.
  • The ECB’s new strategy strengthens the forward guidance on rates, augments the policy toolbox and makes monetary
    policy greener. In the low inflation environment, the financial conditions will be a key driver of the ECB’ s policy. We
    develop a financing conditions index and find that its importance for monetary policy has increased.
  • The BoJ will stick to its accommodation of fiscal expansion as its best means to overcome deflation risks.
  • Persistent monetary support is a boon for risk assets but increases their exposure to the rise in yields which may follow.

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Core Matters ǀ Relative asset performance: still a chance for equities
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