Macquarie Investment Management case study

Central bank policies that trend toward tightening may be changing the “just right” economic environment

Published by : Macquarie Investment Management

In response to the global financial crisis, central banks undertook unprecedented support for the financial system, including $US20 trillion in bond purchases, reducing interest rates to zero, and even cutting rates into negative territory across much of Europe and Japan.

This contained environment of low rates, central bank bond purchases, and implied continued central bank support has been one of the key pillars behind the strong market reaction — one that saw not only risk assets hit new highs but also market volatility measures develop historical lows.


Economic growth and inflation since the crisis have been in a generally stable range: Not too slow to suggest a repeat recession, and not too fast to encourage withdrawal of stimulus. The Goldilocks conditions of "just right" economics have been a perfect environment for most asset prices.
While real economic growth since the crisis has been subdued, low inflation has allowed central banks to keep their support at unprecedented levels. Quantitative easing (QE) purchases could be flat overall by the end of 2018, and policy could actually move to outright tightening by 2019.

Published:09 October 2018

Business Area: Equities

Type: Portable Document Format (.pdf)

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