Monetary policy is supporting assets, not the economy
Bank of America Merrill Lynch Global Research discusses the risk of monetary policy failure on the back of the current easing cycles by the major central banks.
"Global risks have increased, but monetary policy may not be the best way to address them in some cases. The risks that monetary policy is trying to address are primarily the result of policy failures in other areas, which more central bank easing is unlikely to offset, in our view.
We also note that monetary policy has diminishing returns, with increasingly limited impact on inflation and inflation expectations. Most central banks have very limited policy room to begin with and may be wasting valuable ammunition," BofAML notes.
"Last but certainly not least, we see increasing evidence that monetary policy easing in this environment supports asset prices more than the real economy. This increases risks for asset prices bubbles, with the eventual adjustment leading to a worse economy-the Greenspan mistake," BofAML adds.
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