NIRP Was a Dud, Are Central Banks Out of Options?

A growing number of investors are beginning to realize that Central Banks are effectively out of ammo (for now).

Last week I noted that the Bank of Japan’s implementation of NIRP only generated a brief rally in Japanese stocks. That rally has since been obliterated as Japanese stocks collapsed 10%.

This collapse has finally prompted the mainstream financial media to question NIRP. It’s a shame no one bothered to question NIRP, ZIRP, and QE when the markets were still rallying!

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H/T Bill King for noting the change in media tone.

I point this out because it indicates that we are at a critical turning point. Between 2009 and last week, the financial media rarely questioned Central Bank policy, if ever.

The fact that we are now seeing numerous articles criticizing NIRP and Central Banks, tells us that psychologically a significant shift has taken place. That shift will see growing criticism of Central Banks along with an increase in bearish sentiment amongst investors.

This shift was also evident in today’s Q&A session between Fed Chair Janet Yellen and Congress. For the first time in recent memory, a Fed Chair was grilled on the legality and legitimacy of Fed Policy by members of Congress (with the exception of former Congressman Ron Paul).

Does this mean that Central Banks will simply “give up and go home?”

Yes and No.

For certain, the bar has been set much higher for Central Bank monetary policy. Interest rate cuts alone won’t cut it anymore. The ECB has cut rates into NIRP three times. None of these cuts produced a significant stock rally. Only QE did.

Similarly, the Bank of Japan has obtained its best results with QE programs. As I noted previously NIRP barely even bought 24 hours’ worth of market gains.

In simple terms, unless a new large-scale QE program or direct money printing is announced, markets are unlikely to react strongly to new monetary policy from Central Banks.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research