The US Federal Reserve has been stimulating the US economy with extraordinarily easy monetary policy. But it is preparing to tighten.
The European Central Bank and Bank of Japan, however, appear to be on the verge of easing further.
Meanwhile, central bankers in Russia and Ukraine are all about tighter monetary policy.
To help everyone keep track, Morgan Stanley offers this guide to the monetary policy stance and bias of every major economy’s central bank around the world.
Here’s Morgan Stanley’s outlook for the five most important central banks:
US – Expect First Rate Hike In Q1 2016
Dollar strength and overseas economic weakness could feed disinflation bck to the US, lowering need for imminent rate hike from the Fed.
Euro Area – Lower For Longer, But No QE
The chances of QE has increased (up to 40% probability in our view), but not our base-case; the need for full-blown QE will be reduced, if the ABSPP was sizeable and successful.
Japan – Further Easing Expected
Policy response to poor data likely to be further easing of monetary policy as soon as end-October and more aggressive action on the raft of structural reforms.
UK – Rate Rise Expected in Q1 2015
A first rate rise in 1Q would give a few more months for the recover to settle in. We expect three 25bp rate rises in each of 2015 and 2016. However, this won’t happen without higher pay growth.
China – Targeted Easing
In view of strong growth headwinds, the PBOC is likely to maintain the loosening bias in monetary policy; targeted easing measures such as pledged supplementary lending (PSL) and selective RRR cuts will likely remain as the main tools to keep financial conditions loose.