Speaking in Sydney yesterday, Nikko Asset Management global rates and currencies strategist Roger Bridges bemoaned the divergence in monetary policy between the US Federal Reserve and the European Central Bank (ECB).
While the US Fed raised interest rates for the first time in December 2015, the ECB and Bank of Japan (BoJ) are continuing to pursue quantitative easing programs.
The Japanese central bank cut interest rates to negative levels last week, taking the official rate to -0.1 per cent.
Mr Bridges said global markets are reacting negatively every time the US Fed is seen or perceived to be contemplating a rate rise.
“What I am concerned about is that every time we see a recovery the Fed comes back, the US dollar goes up, and we start this cycle again,” Mr Bridges said.
Markets “pull the Fed back” and tell the US policymakers they are “going to fast for the rest of the world”, he said.
“Really what we need is for Europe to recover so in fact the market doesn’t perceive the ECB to be on a perpetual easing cycle.
“So if you got the Fed and the ECB on the same page, then we may see a little bit more stability in the markets,” Mr Bridges said.
If there is some synchronisation of monetary policy, markets should begin to see more sustainable growth, he said.
“The trouble is it can last longer than I think it should do. All central banks going to the same page – and that may be that they’re all cutting rates or they’re all putting rates up,” Mr Bridges said.
“That’s when stability will come back and normal cycles will come back into play.”
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