The Great Financial Crisis saw the biggest ever intervention by the major central banks, with the Fed, the ECB and the BoJ between them expanding their asset books by $3 trillion. But that intervention has been dwarfed by what has happened since, with a further $9 trillion added even before the onset of COVID-19. The pandemic has triggered a further increase of around $5 trillion so far — and the number is unlikely to stop here. The assets of these three central banks are likely to exceed $20 trillion in total soon. Unconventional monetary policy is here to stay.
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Macro 1:
Central Banks are cranking up their high-powered money creation another notch in response to the global pandemic. This is the right thing to do, but it underlines how unconventional monetary policy has now become a conventional response to crisis.
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Macro 2:
Alan Greenspan’s favoured measure of inflation expectations has markets still judging the medium-term impact of the pandemic to be mildly deflationary: in our view, the jury is still out on this point.
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