- The Fed has been ahead of the process of monetary policy normalization relative to the ECB and the BoJ
- The focus is now very firmly on how these east and west central banks look to, and rely upon, one another
In the research group at Nomura, we've been running with a fairly upbeat view toward the world economy. We felt that growth would be strong, it would be stable, it would be synchronized and above trend and that in time that would lead to higher levels of global inflation.
The Fed has been ahead of the process of monetary policy normalization relative to the ECB (European Central Bank) and the Bank of Japan but given that synchronized burst of strength that we've been seeing in the world economy, the focus is now very firmly and very squarely on those two central banks as we move forward.
What we can learn from this is the high level of interdependency that exists between the monetary policy of the European Central Bank and the Bank of Japan, as well as the Federal Reserve. The stock of assets that exists on Central Bank's balance sheets has acted as a key determinant for global financial conditions. So if the Bank of Japan, and to a lesser extent the European Central Bank, are going to continue to move fairly slowly, that in turn implies that that stock will remain quite high and that global financial conditions will remain relatively accommodative.