Checking in on the Neighbors – Global Rates By: Gabriel PotterMBA, AIFA® 2020.10.13

Our business is based in the US.  Most of our clients are in the US.  It’s natural that most of our attention is focused on the US economy or, at best, how our bottom line is impacted by foreign and domestic investments.  However, in the era of coronavirus, there has been a clear separation on how the US is dealing with the coronavirus pandemic relative to our peers in other developed economies around the globe.  That merits some attention, as international economics and investment fortunes can rise and fall based upon differences in the disease’s forecast.

For all the relative advantages across the sea, other developed economies still have to adjust to a stifled rate of growth – and sometimes even worse economies.  Furthermore, many of the actions we’ve taken are mirrored elsewhere.  Just today, the Bank of England sent out a tacit warning to its constituent banks that negative interest rates were a possibility worth preparing for.  This move isn’t unprecedented, since the European Central Bank and the Bank of Japan had already cut their key rates below zero to mitigate economic stress with monetary policy.

In contrast, the United states tends to rely more on fiscal stimulus to do the heavy lifting.  Our key managed programs (e.g. TALF, TARP, CARES) are essentially spending programs – not rate adjustments.  However, the fiscal stimulus we’d seen bolstering the US through the summer isn’t likely to be restarted until after the 2020 election.  It’s worth checking in on the neighbors to see how they’ve managed similar problems.  It’s especially relevant to the US given our strong (but essentially limited) monetary policy response thus far:  quantitative easing and zero-level rates.  Only time will tell if a prolonged stall (curtailing fiscal stimulus) in Congress will force our own Federal Reserve to get more innovative with their policy responses.

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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