Investors have gotten so used to central bank ‘laxity’ they ‘cannot believe it will end.’ Financial markets are essentially burying their heads in the sand about rising interest rates in the US and the end of QE in the Eurozone, according to Patrick Artus, Chief Economist and member of the Executive Committee of Natixis, an investment bank and asset managers with about $900 billion in assets under management.
Investors have been spoiled by central banks and their highly expansionary monetary policies ‘for such a long time’ that they ‘cannot believe’ that the Fed and the ECB ‘can end these policies,’ he writes.
In the US, investors see a ‘muted’ Fed reaction to the return of wage inflation and consumer price inflation. They expect only three fed fund hikes in two years, rather than the three in 2017 alone that the Fed has suggested, followed by a similar number in 2018 and additional hikes in 2019.
This post was published at Wolf Street on Jan 31, 2017.
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