Our Market Optics chartbook contains data-driven insights that power our portfolio management teams’ views, ideas, and decisions. Each week, we’ll take a look a closer look at one of the charts.

This week’s topic: Global economy: Monetary policy

·         The COVID-19 crisis isn’t over, but policymakers are prepping the world for the removal of crisis-era policies. In the U.S., fiscal policy is shifting toward infrastructure and building for the future instead of providing immediate relief. In the European Union, their stimulus is still being held up by political divisions, so who knows when or if that stimulus will happen. If it does, it will likely be well after it is needed.

·         Perhaps more interestingly, monetary policy is decidedly moving out of crisis mode. The European Central Bank is throttling back its pandemic emergency purchase program. The Federal Reserve (Fed) is likely to tee-up tapering within the next few months. Just because the stimulus is soon to slow, that doesn’t mean the recovery is over—far from it! The economic recovery is just getting back onto a more sustainable path.

·         Growth and inflation are very uneven and this unevenness is driven by common causes. The spread of the delta variant is affecting consumer expectations and business hiring, keeping service sector expansion in check and service sector prices elevated. Supply chain and hiring issues are headwinds the economic recovery is sailing into. The Fed is set to taper later this year, so liquidity could become less abundant. “Tapering isn’t tightening” is the mantra many people repeat. While true for the economy, it may be less true for the financial markets. U.S. dollar liquidity remains ample and real yields are deeply negative, which could provide some support to risky assets.


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