Originally published by CNBC | October 14, 2015
In the latest twist, markets have been rallying on hopes that central banks will ease. That’s odd. After all, it was only last month that investors took fright at the Fed’s dovish no-hike decision.
Still, with expectations growing for central banks in Japan, Europe, China, India, and elsewhere to loosen soon, investors are feeling more cheerful. And we shouldn’t be surprised if risk assets rallied on these hopes, given the extent of their two-month swoon. But if market sentiment depends on central banks alone, this rally will peter out. Much more is required to sustainably restore investor confidence.
The reason is simple—the world suffers from not enough growth. And central banks, while not powerless, are unlikely to lift growth much. Partly, that’s because their tools—interest rate cuts, quantitative easing and jawboning—are clearly subject to diminishing returns. Central banks are also very unlikely to deploy policies that would work, such as financing fiscal expansions or taxing cash. Continue Reading.