The theme of monetary policy divergence amongst major central banks is likely to become more pertinent.
The US Federal Reserve is inching towards a likely policy rate hike on 16th December. At the other end of the scale, a number of European central banks have negative policy rates and the ECB will likely announce an expansion and/or extension of its current QE program and possibly a further cut to its deposit rate at its policy meeting on 3 December.
Somewhere in the middle is the broadly neutral Bank of England (BoE), which has oscillated between mild hawkishness and mild dovishness in the past year.
But interestingly the US and UK economies have similar CPI-inflation, GDP growth and unemployment rates of around 0%, 2.5% and 5% respectively.
While one could make the case that the BoE and markets are slightly too dovish about the need and prospect for UK rate hikes, I would argue that ultimately the Fed’s hawkishness relative to the BoE and the market pricing of Fed hikes seems broadly fair, for six reasons detailed in the attached presentation.
