Q3 2018: By Bit and Bridle
As central banks move away from ultra-accommodative monetary policies, dependence on forward guidance as a market pacifier has grown increasingly important. While the Fed has eliminated some forward guidance, Powell is still guiding markets through the “normalization” process in post-meeting press conferences, which will be held at every FOMC meeting beginning in 2019. The ECB and BOJ, meanwhile, have increased their communications. The quarter started with more-dovish-than-expected FOMC minutes, and ended with less-hawkish-than-expected FOMC projections. The BOJ unnerved markets with stealth tapering that widened the trading range on JGBs, before introducing forward guidance to explain the meaning of conducting its bond purchase program in a “flexible manner.” The ECB’s Mario Draghi spoke about plans to stop expanding its €2.4tn QE program (though still allowing for securities reinvestment) and promoted greater risk-sharing among member states through an integrated European banking and fiscal system.