In rather quick succession, the major central banks applied the brakes on rate hikes, as every major economy moved downward in syncopation, starting possibly with China and spreading to all the advanced economies. Globally, central bankers are starting to read the writing on the wall and are either holding off on rate hikes or taking steps to prevent further economic erosion. A quick survey of recent central bank decisions reveals how thinking has changed in just a matter of a few months;

• The ECB just announced it would hold interest rates at their current levels at least through the end of this year, many months longer than the markets anticipated; moreover, it will loosen monetary policy through a series of cheap long-term loans to the banking sector, in effort to stimulate growth; negative interest rates in Europe, leave the ECB with no room to cut borrowing costs to provide stimulus in response to their sliding economies;

• The Fed, believing that the US economy was on a “solid” footing  in 2018 raised their benchmark rate four times; the Fed abruptly shifted course in January and signaled that it was on hold regarding future rate hikes; in addition, it has already signaled that it will end the gradual runoff of its $4 trillion asset portfolio;  today’s dismal job numbers in the United States ---- statistically zero job growth in February----- just confirmed the decision by the Fed to halt rate increases; finally, several bank governors have walked back the need for rate hikes in the immediate future in the wake of continued trade disputes with China and domestic inflation coming below target;

• The Bank of Canada was caught off guard by the dramatic slowdown in the fourth quarter last year; exports and business capital investment fell well short of expectations; in addition, the softness in retail sales and a decline in the housing market lead Governor Poloz to state the Bank will be on hold because there is so much uncertainty regarding the international environment.[1]

• Asian central banks. The Bank of Japan continues to run the most accommodative monetary policy with zero interest rates for long bonds and the most aggressive bond-buying program of any central bank; Chinese authorities are now facing considerable pressure as their economy slows ; today’s announcement of 20% decline in exports will likely prompt the Chinese authorities to add to the existing stimulus package; and, the Reserve Bank of Australia just announced that its policy rate will remain unchanged and warned of deepening risks to the global economy.

When the central banks embarked upon this most recent rate hike cycle, they did so in the believe (hope) that rates would “ normalize”-----that is, rate levels would provide adequate room to be lowered should economic conditions warrant. Not only are the central banks holding the line on future rate increases, but they are also collectively holding their breaths for fear that, should economic conditions deteriorate further, they do not have sufficient room to lower interest rates to combat a serious downturn.

[1]The Bank Of Canada Is Throwing In The Towel On Future Rate Hikes