China is a concern. But, while the leverage & defl ation effects need watching, the Fed should not be knocked off course. US rate hikes could start in December, then extend gradually in 2016-17.
Our Policy Looseness Analysis beefs up the ‘Taylor Rule’ used for setting rates. Adjusting for QE, ‘true’ US & UK policy rates are as low as -5% & -2% respectively - much lower than reported. We gauge how far the Fed & BoE may have to pull on the other ‘monetary lever’ through ‘QT’. ‘Normalisation’ could ultimately be secured at relatively low US/UK peak rates of 4%/2½% respectively.
Pulling all strands together, main central banks have the wherewithal still to resist global recession. And, compared to many others’ (e.g. Greece), China’s policy position looks less acute. So, given this relative advantage, the policy ball is now in China’s court...
Hermes Real Estate - Responsibility in practice