Not everyone is dovish in the E.U.

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The ECB’s decision to cut interest rates, on June 5th, helped push the notion that monetary stimulus has yet to become a thing of the past, and that the only monetary tone at the European Union is a dovish one. The dovish approach is willing to stimulate the economy through accommodative monetary policy, even at the expense of the risk of inflating a financial bubble or two. It also made global central banks, such as the Fed, more cautious in regards with dispersing hawkish forward guidance. Evidently, with the ever-more-important role monetary policy took in shaping economic activity in recent years, comments going against the stream are prone to be retorted with a violent capital market response. This premise, however, was countered last Thursday by Bank of England Governor Mark Carney, who delivered a rather hawkish speech At the Lord Mayor’s Banquet for Bankers and Merchants of the City of London. In his speech, Carney mentioned strong indicators regarding the United Kingdom’s economy, such as the Bank of England’s staff projection of an annualized 4% increase of GDP. On the other hand, Carney described the economy as "over-levered" and its housing market as having a potential to "overheat". Additionally, the weak Sterling was insinuated to lead current deficit to a record level. Deeming necessary a remedy to the above situation, Carney moved on to note of "great speculation" regarding the exact timing of the first rate hike. The tone then turned rather hawkish as Carney said that the decision for the first rate hike is becoming "more balanced" and that "it could happen sooner than markets currently expect".

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Temporary maneuvers in a terminal situation

The minutes did note a joint session being held between the Federal Open Market Committee and the Board of Governors where the “eventual normalization of the stance and conduct of monetary policy” was discussed. However, those were said to have been undertaken as part of prudent planning, while stressing that it “did not imply that normalization would necessarily begin sometime soon”. Moreover, the mere idea of "starting to consider the options for normalization at this meeting" was described as prudent, while suggesting the first steps in normalizing policy have yet to become appropriate. At the bottom line, the minutes stressed the fact that no decisions regarding policy normalization were taken, while meeting-participants noted that "it would be helpful to continue to review these issues at upcoming meetings". In conclusion, the Fed managed to assure markets it was attending to the question of when it will increase interest rates, it is simply too early to disperse any information regarding when that will actually happen. It managed to avoid a bullet in the sense that unlike previous comments on the matter, this time no turbulence was witnessed in interest, and subsequently all other, markets, with the release of the minutes. However, the mathematical fact outlined above regarding the imminent end of tapering still holds. The Fed can try using temporary maneuvers in what is essentially a terminal situation, but it will have no alternative rather than changing its strategy at some point. Start Trading HERE!