Category Archives: BOE

10/1/19: QE or QT? Look at the markets for signals


With U.S. Fed entering the stage where the markets expectations for a pause in monetary tightening is running against the Fed statements on the matter, and the ambiguity of the Fed's forward guidance runs against the contradictory claims from the individual Fed policymakers, the real signals as to the Fed's actual decisions factors can be found in the historical data.

Here is the history of the monetary easing by the Fed, the ECB, the Bank of England and the BOJ since the start of the Global Financial Crisis in two charts:

Chart 1: looking at the timeline of various QE programs against the Fed's balancesheet and the St. Louis Fed Financial Stress Index:


There is a strong correlation between adverse changes in the financial stress index and the subsequent launches of new QE programs, globally.

Chart 2: looking at the timeline for QE programs and the evolution of S&P 500 index:

Once again, financial markets conditions strongly determine monetary authorities' responses.

Which brings us to the latest episode of increases in the financial stress, since the end of 3Q 2018 and the questions as to whether the Fed is nearing the point of inflection on its Quantitative Tightening  (QT) policy.

10/1/19: QE or QT? Look at the markets for signals


With U.S. Fed entering the stage where the markets expectations for a pause in monetary tightening is running against the Fed statements on the matter, and the ambiguity of the Fed's forward guidance runs against the contradictory claims from the individual Fed policymakers, the real signals as to the Fed's actual decisions factors can be found in the historical data.

Here is the history of the monetary easing by the Fed, the ECB, the Bank of England and the BOJ since the start of the Global Financial Crisis in two charts:

Chart 1: looking at the timeline of various QE programs against the Fed's balancesheet and the St. Louis Fed Financial Stress Index:


There is a strong correlation between adverse changes in the financial stress index and the subsequent launches of new QE programs, globally.

Chart 2: looking at the timeline for QE programs and the evolution of S&P 500 index:

Once again, financial markets conditions strongly determine monetary authorities' responses.

Which brings us to the latest episode of increases in the financial stress, since the end of 3Q 2018 and the questions as to whether the Fed is nearing the point of inflection on its Quantitative Tightening  (QT) policy.

7/12/15: Of Monetary Activism and Growth: CB Balancesheets vs Economies Balancesheets


There is much talk around two matters relating to the monetary policy expectations:

  1. The 'normalisation' course allegedly pursued by the Fed (rates rises); and
  2. The justification for (1) by references to the monetary policy-repaired economy, made wholesome once again thanks to the Central Banks' activism (see recent Janet Yellen speech on the subject here)
Except, of course, the second point is... err... questionable. For all the estimates of percentage points of growth uplifts and unemployment reductions delivered by the Fed-linked economics analysts, there are two simple facts stubbornly persisting out there:

Fact 1: U.S. (and European, and Japanese, and global) growth since the end of the Great Recession has been much slower than historical records for recoveries suggest; and

Fact 2: Fact 1 comes on foot of a historically unprecedented monetary expansions, that are, by far, not over yet.

Here are two charts on the second fact:


Now, observe: as of today, Big 4 CB balancesheets expanded almost 4-fold. By the end of 2017 (per BAML), projected balancesheets are expected to rise even further, by more than 4.5-fold. Both BOJ and ECB will be leading this latter stage of monetary easing - the two economies that are by far fairing the worst throughout the crisis, despite the fact that whilst the ECB adopted a more conservative stand in the earlier stages of the crisis, BOJ raced ahead of everyone else with Abenomics arrival.

In other words, since 2012 through 2015, CB balancesheets grew by more than 50 percent. Meanwhile, what happened to growth rates and growth expectations?


Which, sort of, suggests that all this 'normalisation' of growth under the monetary policies activism is... well... imaginary?..