Decisions, decisions. This week there were a host of decisions from the world’s central bankers. The party kicked off with the Bank of Japan (BoJ) announcing no change to their current stance, maintaining the negative interest policy from January and their pace of quantitative easing. A release of minutes from the January meeting revealed that Japanese policy makers were split on the idea of taking interest rates below the zero bound versus ramping QE higher. It’s nice to know that even the central bank that is “all in” on fighting deflation still had some qualms on the newest monetary experiment. As noted last week, short-term rates aren’t the only yields that are negative in Japan. After issuance at a negative yield, the benchmark 10-year Japanese Government Bond (JGB) fell to a new low of minus 0.135% before bouncing back a bit too only minus 0.100%.
The no-action trend continued with the Bank of England (BoE) who guided away from a rate this year and the Swiss National Bank (SNB) who commented that the Swiss franc remains overvalued. The US Federal Reserve, who also surprised no one with its non-action, caused a little more excitement than others by their change in forecast. The so-called “dot plot” of the policymakers’ estimate for where rates will be in the future showed a revision down from the prior iteration. Previously, the Fed forecast implied four potential hikes this year whereas this latest release ratcheted down to two. Usually, when an actual outcome matches what the market already expects there is little reaction in asset prices. This time it was different. Based upon the futures market, traders already expected the Fed interest rate path to be much slower than the originally indicated four hikes. When the forecast was released, stocks, bonds, and gold all rallied in price. There are not many economic environments in the medium-term that support all three of those asset prices continuing to move together, so logic suggests that something will change.