When the world economy sneezes
Last week the ECB (European Central Bank) pretty much threw the kitchen sink at the markets. They lowered the discount rates that banks receive, reduced the overnight lending rate, and increased asset purchases. They also announced they will loan money to banks at zero or negative interest rates. This is important to US investors because in the big picture of the world economy the weaker european banks policy looks, the stronger ours appears. This could strengthen the dollar and push the Fed’s interest rate hikes out further. It could also hurt our exporters as a stronger dollar means lower oil prices. Oil is priced in dollars which would make it harder on exporters. When the world economy sneezes, we all feel the impact.
Reassessing the inflation target
A lot of the central banks around the world are looking at the international inflation target which is around 2%. They are questioning whether this even works any more because of its narrow range. There is a lot of discussion that perhaps it should be around 4%. Others say it should be 1%. Still others are questioning what the paradigm should even be.
Keeping the dollar from getting out of control
This week our attention is on the Bank of Japan, the Bank of England, and our Federal Reserve meeting. On Wednesday we are not expecting our Fed to raise rates. Even though some of the economic numbers look better than when they raised rates in December, we believe it is going to be very hard for them raise rates with all that is going on in Europe. They don’t want the dollar to get out of control. We still believe that we won’t see increased interest rates until June at the earliest. We are going to be listening for a hawkish or dovish tone with what they say.
Glimmers of hope in a bear market
We have a busy week of economic reports. Retail sales, inflation numbers, and consumer sentiment reports will all give us a better idea of what is going on in the economy. We still think we are in dangerous territory with a bear market. We haven’t gotten any positive signals that the markets have turned but we are seeing glimmers of hope that we are headed that way.
We will keep you updated as always. Please keep those questions and comments coming.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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