Global coordinated easing won’t last: Goldman Sachs

Most of the world needs accommodative monetary policy. The US increasingly doesn’t.

That’s a problem for central banks looking to maintain financial stability during a time in which disinflationary forces prevail in most parts of the globe, and it’s a particular pain for the Federal Reserve, whose recent decision to stand pat on interest rates, combined with dovish rhetoric and a subdued outlook, placed it firmly back in position as the central bank for the world.

“One interpretation of the recent moves by the European Central Bank and the Federal Reserve is that they represent coordinated attempt to ease global financial conditions while avoiding upward pressure on the US dollar, especially against the Chinese renminbi,” write Chief Economist Jan Hatzius and Economist Sven Jari Stehn of Goldman Sachs Group.

In its statement last week, the Fed noted the resilience of the US economy in the face of financial market turmoil stemming from the devaluation of China's currency in August by highlighting that that activity had been expanding at a moderate pace despite these headwinds.

But in as much as these widening spreads and a lofty greenback were drags that hampered US activity, they won't be around too much longer, according to Goldman's economists. That's because the spate of dovishness in recent weeks.—Bloomberg