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Signal in September, decide in December

| Posted by: Paul Donovan | Tags: Paul Donovan

The Bank of Japan left rates unchanged (perhaps recognizing that taxing savers and banks via negative rates may be doing more harm than good). The change today was in the terms of quantitative policy, with a commitment to expanding the money supply and supporting bond markets.

Will it work? It does seem a little difficult to expect the Japanese consumer to suddenly declare "Hurrah, the maturity level on Bank of Japan bond holdings has been lifted. Finally we can buy the car we have been dreaming of."

The US Federal Reserve meeting is not expected to change policy today, but to hint at a December monetary policy tightening. Why change? Inflation is normal. The labor market is tight. Wage pressures are building. The Fed may be a bit late in considering a rate rise.

It is worth remembering that US quantitative policy is slowly tightening (liquidity is falling relative to the size of the economy). Meanwhile the new UK Bank of England member Michael Saunders was sounding cautiously optimistic on the UK economic outlook, though concerned about the possibility of higher unemployment.