The recent new head of the Bank for International Settlements Agustin Carstens on US / China trade tension:
- "We are entering into a dangerous dynamic where these type of (protectionist) issues start having side effects on currency markets and financial flows
- We can start a very dangerous spiral that at some point can really affect the growth of the world economy and financial stability."
But, the baseline for the BIS is that is escalation is avoided the global economy will continue to improve. It supports further tightening:
- Federal Reserve to keep moving up U.S. interest rates
- Other major central banks (eg. the ECB) to reduce stimulus programs
- "I think it is important for the normalization to proceed gradually"
Carstens was interviewed by Reuters
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I guess Carstens is relying on the data he has at hand, but my concern is he is underestimating Trump on trade restrictions. Its understandable, Trump has been underestimated ever since be coming a candidate. I don't want to be a doomer, but hope for the best and plan for the worst might be a useful starting point right now.
