Measuring the Monetary Space for a New Round of Rate Cuts

(Bloomberg) --

Looking across major central banks, expectations for the year ahead are firmly tilted toward stimulus, but an analysis by Bloomberg Economics shows that rate-cutting firepower is limited. Since 1990 there have been mini-easing cycles -- notably under Alan Greenspan's leadership at the Federal Reserve in 1995 and 1998 -- when total cuts added up to 75 basis points. If that is all that's required the Fed, the Bank of Canada and the Bank of England have enough space, while the European Central Bank and the Bank of Japan do not. For serious downturns, though, typically rate cuts total closer to 500 basis points and no major advanced-economy central banks have that much space.

©2019 Bloomberg L.P.