“Who Moved My Punch Bowl?”- Morgan Stanley Says A Repricing Of The “Central Bank Put” Is Imminent

Sunday, July 9, 2017
By Paul Martin

by Tyler Durden
Jul 9, 2017

Some potentially displeasing “Sunday Start” thoughts to market bulls, from Chetan Ahya, Morgan Stanley’s global co-head of economics, who warns that in light of the recent “hawkish tilt” by central banks, the message is clear: “central banks are more watchful of financial stability risks: It is in this context that central banks now appear to be keen to lean against easy financial conditions so as to pre-empt the rise of financial stability risks. To assess financial stability risks, Fed Vice-Chair Fischer had recently highlighted the Fed’s framework in a recent speech in which he highlighted the “four broad cyclical vulnerabilities: (1) financial sector leverage, (2) non-financial sector borrowing, (3) liquidity and maturity transformation, and (4) asset valuation pressures”.”

As a result, “financial stability risks will hold the key: In the 2004-07 episode, as inflation was well-behaved, the pace of monetary tightening by central banks was slower than warranted, which resulted in a build-up of financial stability risks as financial conditions stayed easy, private sector leverage in both the non-financial and financial sector rose sharply and asset markets were buoyant.”

All of which means that “markets will therefore have to deal with the repricing of the central bank put – a key feature of the post-crisis world: Whether policy-makers are tightening via rates or balance sheet actions, or imposing more macro-prudential norms, the message is clear – the global monetary policy stance has taken a hawkish turn and will continue to do so.”

The Rest…HERE

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