Market and economic update: Central banks adjust monetary policy

Easier monetary policies continue around the world, despite a U.S. Federal Reserve (Fed) on the cusp of interest rate normalization. India and Canada have cut short-term interest rates, the People’s Bank of China added liquidity to the banking system, and last week the European Central Bank (ECB) announced a surprisingly large quantitative easing program.

This program should help expand the ECB balance sheet by 50%, back toward its post-financial crisis peak of 3 trillion euros. The plethora of easing moves should provide some support to global economic growth over the coming months. Recent data outside the United States has been relatively soft, with weak prices and weak activity. Fourth-quarter gross domestic product growth in China was the slowest since the global financial crisis. Flash estimates of January manufacturing purchasing manager indexes indicate that growth in China, as well as the eurozone, remains sluggish.



In the United States, economic data remains consistent with solid economic growth. Jobless claims remain relatively low, the Conference Board Index of leading indicators points to expansion, and the housing market continues to recover. This solid data should provide further support for a Fed decision to end its zero-interest-rate policy, but we believe that is unlikely to happen at this week’s meeting.

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Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.

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