Dim economic forecasts are telling of a lack of faith

Lower expectations, declining confidence in central banks

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Chart is for illustrative purposes only. Source: Bloomberg, February 2016

Chart is for illustrative purposes only. Source: Bloomberg, February 2016

*Organization for Economic Co-operation and Development's Producer Price Index

**The Asian Producer Price Index

Chart is for illustrative purposes only. Source: Bloomberg, February 2016

Interventions by central banks have been increasing in recent years as they attempt to guide global economies through monetary policy. These actions have ranged from the U.S. Federal Reserve’s quantitative easing (QE) program (which never seemed to produce its intended wealth effect) to stimulus efforts by the European Central Bank and the Bank of Japan that have brought those areas into negative interest rate territory.

Despite these efforts, economic indicators of growth and inflation are pointing downward as these charts show. Are they signs that the markets are losing confidence in the ability of monetary policy makers to steer economies toward growth?

Optimism about global growth appears to rest on the euro area and Japan, but self-sustained growth — at least without increased debt — has not materialized. Meanwhile, inflation has come in persistently below target. Core inflation in the United States has been generally low since the global financial crisis, although there have been some cyclical upticks that have brought inflation within the range of the Fed’s mandate to raise interest rates. But forward inflation expectations have been falling, suggesting that market participants may be losing confidence in the Fed’s ability to use the tool of inflation to drive monetary policy.

The views expressed represent the Manager's assessment of the market environment as of March 2016 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

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