Think Central Banks Are Done? Stimulus to Accelerate in 2015

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If you expect global central banks to unwind stimulus next year, you’re probably wrong.

In fact, the world’s monetary policy makers are set to open the cash spigot by the most in four years in 2015. Major central banks will together add almost three times more liquidity next year than they did in 2014, according to Credit Suisse Group AG analysts.

Even with the U.S. Federal Reserve and Bank of England having wrapped up their bond buying, the strategists led by Andrew Garthwaite estimate the balance sheets of the four top central banks will grow 13 percent next year, or $1.3 trillion, after this year’s 5 percent expansion.

They assume the Bank of Japan will account for $855 billion via quantitative easing and the European Central Bank will increase its assets by about half the 1 trillion of euros it’s aiming for. If the ECB hits its target then the swelling globally will be $1.9 trillion or 18 percent.

At Danske Bank A/S, chief analyst Allan von Mehren in Copenhagen projects similar numbers. He says a gain of around $1.5 trillion would be the most since 2011 and return balance sheets to their levels of that year.

Fed Stimulus

Even without fresh purchases the Fed will likely remain stimulative just by holding on to its assets, according to a review of research by Tony Yates, a consultant to Oxford Economics Ltd. and a former economist at the Bank of England.

“If it is the stock of QE that matters over anything but short periods, the end of the Fed’s QE purchases means that monetary stimulus is currently being maintained at a very high level,” said Yates in an October study. “Therefore its effects on asset prices and yields on long-dated Treasuries should persist.”

The goal of policy makers is that inflated balance sheets will inject more stimulus into economies, resulting in more spending and greater risk-taking by consumers, businesses and investors.

Less persuaded is Alberto Gallo, Royal Bank of Scotland Group Plc’s London-based head of European macro credit research. He likens much of the global economy to the 1995 film “Waterworld” in which Kevin Costner’s character searches for what life is left amid the endless sea.

“It’s the trap of ‘QE infinity,’ where central bank liquidity is abundant, but where there is little ground for growth,” Gallo said. “Like in Kevin Costner’s film.”

(An earlier version of this story corrected the amount of balance sheet expansion next year to $1.3 trillion)

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