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Eco Focus is an aperiodic publication providing up-to-the-minute analysis of a current topic.
The British referendum on the 23th of June resulted in a vote to leave the European Union, with 51.9% of votes in favour of 'Leave'. The details of the results show an extremely divided UK, highlighting the strong likelihood of a dislocation of the country if a 'Brexit' really happens. The political crisis is set to prevail in the coming months, as is the uncertainty over the future of the country and its relationship with the EU. This will undoubtedly weigh on confidence and economic growth in the UK in the near to longer term.
"...what changes...is that if structural reforms are in place, the time that it takes to reach this objective is smaller, is shorter”. The ECB did not change its monetary policy stance, it reaffirmed its confidence in its tools to support the Eurozone economy but, once again, it insisted on the need for other policy areas to act.
As we went to press in March, the European Central Bank had just announced that it was stepping up its quantitative easing policy. But, thanks to our QE impact indicator, we can already observe its initial effects on monetary and financial conditions.
Following our report "TLTRO II in five questions", we continue our series of technical publications on the ECB. At first glance, the EAPP (expanded asset purchase programme) is a simple quantitative easing programme, and the 2008 crisis taught us what a QE programme is. However, as always as far as the Eurozone is concerned, things are a little bit more complex.
FOMC voters want to keep their options open for raising rates in June. They seek to "maintain the flexibility to make this decision based on how the incoming data and developments shaped their outlook for the labor market and inflation as well as their evolving assessments of the balance of risks around that outlook." Fed officials generally saw the Q1 growth slowdown as temporary and noted that labor market conditions continued to strengthen while inflation continued to run below the 2% objective.
On 10 March 2016, the ECB announced a second series of TLTRO with easier conditions than the first series. At the four quarterly operations (from June 2016 to March 2017), banks will be able to borrow for four years at a rate between -0.4% and 0%, depending on their lending to the private economy.
The FOMC maintained its current monetary policy settings today, in line with market expectations. Neither the 0.25% to 0.50% Fed funds target range nor the Fed's current portfolio reinvestment policies were changed. The discussion in the March FOMC minutes and subsequent comments from Fed officials pointed to little chance of policy move in April.
The ECB released the details about the CSPP. However, it will "be mindful of the potential impact of its purchases on market liquidity". We expect the ECB to purchase EUR4bn a month on average. Mario Draghi gave more details on other monetary policy tools. Above all, M. Draghi has fiercely defended the ECB's independence and reiterated the crucial need for governments to do more on structural reforms and growth-friendly composition of public finances.
Jean de La Bruyère starts The Characters, his collection of philosophical essays. 320 years later, we face the same issue with helicopter money: everything has already been said about this potentially powerful central-bank tool. In this report, we do not claim to revolutionise the subject only to clear the air about the next potential monetary policy tool. We try to answer four basic questions: where does the 'helicopter money' idea come from? What are the different options conceivable? Is helicopter money legal for the ECB? To what extent is helicopter money effective?
The discussion in the March FOMC minutes aligns closely with Chair Yellen's cautious, dovish policy outlook. While a range of views was expressed in the minutes, and a couple Fed officials are ready to continue with rate normalization as soon as the April FOMC meeting, the majority view is to proceed more cautiously.
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