CITI: There’s A Huge Split Coming To The World’s Major Central Banks

Mario draghi

Here’s a very important and interesting forecast from Citi’s top economist, Willem Buiter. He expects both the Bank of Japan and the European Central Bank to engage in “major” quantitative easing programs later this year or early next year. This is because their economies are flagging, particularly in Europe, where inflation expectations are collapsing.

On the flipside, the Fed and the Bank of England are both expected to begin the normalization process (rate hikes) fairly soon (sometime next year). Indeed, in both the minutes for the BoE and the Fed on Wednesday, there were signs that more monetary policymakers are ready to get on with the hiking.

Anyway, here’s Buiter:

We believe that early easing by both the BoJ and ECB is more likely than the consensus view. We look for both central banks to downgrade their economic forecasts and to launch major QE programs in Q4-14 or perhaps Q1-15. In the euro area, inflation is close to zero, inflation expectations are falling sharply, while weakness in Q2 GDP and recent business surveys suggest that growth is unlikely to be strong enough to prevent a sustained inflation undershoot. In Japan, recent comments suggest that the BoJ is now becoming more worried about growth prospects, in light of weak data after the tax hike. We regard the BoJ’s semi-annual forecast update in late-October as a likely trigger for further easing, especially given the prospect that the government will proceed with the second consumption tax hike in 2015. By contrast, the U.K. remains likely to tighten in the next six months or so, with the Fed likely to start to hike rates about a year from now.

As for Europe, we just got fresh data this morning that indeed, things are still awful.