We learned three things about central bankers today.
2) The Federal Reserve is unwilling to rattle markets.
3) Neither central bank believes it can truly stimulate economic growth much more at this point and the onus is now on government officials and their policies.
Both central banks made highly anticipated policy announcements on Wednesday. Trillions of dollars of assets hinged on their every word. They could have announced something shocking. But instead of shaking anything up, their announcements had the least dramatic effect on markets possible.
The BOJ took a highly nuanced approach, saying it’s going to try to anchor 10-year government-debt yields near zero by fine-tuning its asset purchases. Its tone was a sharp departure from the "shock and awe" proclamations from earlier in the year and was largely viewed as a tacit admission that it has reached the limits of buying government bonds.
The market reaction was relatively muted and generally opposite of what the BOJ wanted. The yield curve flattened, not steepened.
The yen strengthened against the dollar.
The Fed, meanwhile, refrained from raising interest rates Wednesday despite general improvements in the U.S. economy and all but promised that it would raise the overnight borrowing benchmark later in the year. That was largely in line with what markets were expecting. The market reaction was unimpressive.
Together the Fed and the BOJ have made clear that they have gone about as far as they are able or willing to go to fill in the gap left by inaction by lawmakers worldwide. The Fed, for its part, is satisfied with steering the ship as smoothly as possible until politicians step in with something more effective or the economy starts accelerating on its own.
In short, these central bankers are essentially throwing in the towel with respect to searching for ever more creative solutions or making waves. The monetary-stimulus gig is over for now. Even if these bankers don't explicitly back away from their efforts, they've reached their limits. It's the politicians' turn now.
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