March 3 in 3
This month, Jason Weaver discusses the central banks, monetary policy and fiscal stimulus.
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3 in 3 is a monthly video series centered around three current market themes for the month with their accompanying data points.
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March 3 in 3 Jason Weaver Weaver Consulting Group 101 Main Street, suite 220 Huntington Beach, CA 92648 714 536 4065 There are three main functions of the central bank. They set interest rates and create the monetary policy. For example, there is the US Federal Reserve, European Central Bank and People’s Bank of China. What you are looking at here is the total assets of all major central banks. Which currently stands at 19.6 trillion dollars. That also includes the Bank of Japan. The Federal Reserve has reduced their total assets. But recently, in their comments, they might stop that reduction policy. The European Central Bank has been increasing their total assets as you can see in the chart. Also, the public bank of China has been consistent since 2008. Monetary Policy March 2019 Some goals of the U.S. Federal Reserve are to promote employment, maintain price stability and moderate interest rates. They can do this through the monetary policy. In Europe, their goal is to maintain price stability. In China, their goal is to keep the value of RMB (their currency) stable and contribute to economic growth. Also, what you see here is the interest rates in the United States, Europe and China. The U.S. has been raising interest rates since 2016. Based on the last meeting, the goal is to keep the overnight rate between 2.25 to 2.5 percent for an extended period of time. Europe has been at zero percent for quite a long time. Also, the public bank of China has been reducing interest rates since about 2015. Fiscal Stimulus March 2019 Fiscal stimulus is when the government tries to boost the economy. The goal is to create growth because monetary policy might not be working by itself. One example, is the Trump 2017 tax cuts which boosted the economy. Additionally, China might issue tax credits or tax reduction strategies to boost their economy. Finally, you can see that once Trump created that tax policy, how growth took off. But China has actually been faltering here lately. Their growth rate right now is going below 6.4 percent. Thus, one might expect some fiscal stimulus coming out of China togs above their 6.6 percent target rate.