March 2019 3 in 3
March 2019 – 3 in 3
This month, Jason Weaver discusses the central banks, monetary policy and fiscal stimulus. If you would like to subscribe to our monthly 3 in 3 videos, visit our YouTube channel below. At Weaver Consulting Group we’ve come to know through our clients that they like to stay informed about the economy and markets. This is why we’ve come up with “3 in 3.”
3 in 3 is a monthly video series centered around three current market themes for the month with their accompanying data points. At Weaver Consulting Group it’s our goal to provide the maximum amount of value to you and your family. We hope this helps you feel more informed. Which allows you to be more confident, so that you may find yourself inspired and worry free in retirement!
There are three main functions of the central bank. They set interest rates and create the monetary policy. For example, there are the US Federal Reserve, European Central Bank and People’s Bank of China. The total assets for all central banks currently stands at $19.6 trillion. 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. The public bank of China has been consistent since 2008.
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 in the second chart are interest rates of U.S., 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% for an extended period of time. Europe has been at 0% for quite a long time. Also, the public bank of China has been reducing interest rates since about 2015.
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, growth took off. But China has actually been faltering lately. Their growth rate right now is going below 6.4%. Thus, one might expect some fiscal stimulus coming out of China as they toggle above their 6.6% target rate.