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Living with the ‘new normal’...

Ahead of the curve

October 2016

Home / Perspectives / Ahead of the curve: Living with the ‘new normal’…

Neil Williams, Group Chief Economist
04 October 2016
EconomicsPerspectives
  • AC10-16thumbEight years on from the collapse of Lehman Brothers, & macro comparisons with 2008 can thankfully be diluted. Yet, policy rates in 2017 will stay close to the floor, while, separately, political risk in the developed economies - largely absent in 2008 - is building
  • The US Fed remains the test case for whether central banks can ever ‘normalise’ rates. We expect it to try, but fail, peaking out at a far lower policy rate (1%) than in past recoveries.
  • We update our ‘Policy Looseness Analysis’ to gauge how monetary & fiscal mixes will shift in 2017. By taking explicit account of QE, true US & UK policy rates may be as low as -4½% & -2½%.
  • In the long term, the Fed & BoE looking to peak out at lower than ‘normal’ rates can pull on the other monetary lever: ‘QT’. This may go some way to removing the unintended consequences of QE.
  • Meantime, without convincing recoveries, any contagion, unlike 2008-09, may be political rather than financial. Hopefully, governments in 2017 will help avert this by offering fiscal solutions, taking the policy ‘baton’ back from the central banks...

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Neil Williams Group Chief Economist Neil joined Hermes in August 2009 and is responsible for Hermes’ economic research. He has a forward-looking approach to generate investment strategy ideas. Neil adopts top-down methods – macro and market analysis to identify interest rate and credit value, and sovereign default risk. Neil began his career in 1987 at the Confederation of British Industry (CBI), becoming its youngest ever Head of Economic Policy. He went on to hold a number of senior positions in investment banks - including Director of Bond Research at UBS, Head of Research at Sumitomo International, Global Head of Emerging Markets Research at PaineWebber International, and, before coming to Hermes, Head of Sovereign Research and Strategy at Mizuho International. Neil has 29 years’ industry experience and earned an MA in Economics in 1986 from Manchester University, having the previous year completed his BSc (Hons), also in Economics, from University College Swansea.
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