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Is the Global Economy Really at a Tipping Point?

2018-11-19 00:00:00 - 3 min 읽어보기

Christopher Smart, Head of Macroeconomic & Geopolitical Research, believes it's important to keep today's market risks in proper perspective.

You can hear the bearishness in everyone’s voice. They don’t trust a cycle this old. They won’t fight the Fed. They fear a market swoon amid a world of crazy politics.

But are those really the right assumptions? The risks are clearly mounting, as we saw in recent data signaling slight economic contractions in Germany and Japan. But for now anyway, monetary, fiscal and political headwinds hardly seem strong enough to tip us into a global recession.

THE FED FACTOR
If the biggest market worry centers on the Fed, that should begin to dissipate early next year. Rates are surely rising and debt service is growing more expensive, but how likely is it that U.S. monetary policy is really “behind the curve”? Wages and tariffs may be nudging some prices higher, but energy and technology prices are falling.

Most forecasts have core inflation hovering just above 2%, which suggests that the end of the current tightening cycle is in sight. The Federal Open Markets Committee seems headed slowly and tentatively toward a 3% Fed Funds rate at the end of next year if the “dot plots” hold, but futures markets are pricing in lower rates.

Meanwhile, monetary accommodation reigns in Europe, Japan, China and beyond. And long-term demographic trends and new technologies seem likely to keep any inflationary spikes in check.