A financial pivot point - 2017


The US contribution. Many historical turning points in the global financial cycle are related to steps, or missteps, in US regulatory policy, whether fiscal, monetary or prudential. The US economy accounts for almost 30% of global gross domestic product and, despite the rise of China and the consolidation of the Eurozone, the US dollar remains the international reserve currency. Hence, events in the US continue to define the global economic and financial operating environment.


In 2015, the US was the first advanced post-Great Recession economy to raise interest rates. Nevertheless, if a definitive turning point is to be discerned, it should be focussed on 2017, when the US Federal Reserve raised interest rates three times and announced three further increases for 2018 (the official rate may rise to 2% for the first time in 10 years). Furthermore, the US was also the first country to begin unwinding QE by limiting reinvestment of coupon payments in late October 2017. Over this


same period, the benchmark 10-year Treasury yield rose from a record low of 1.5% in mid-2016 to 2.4% by the end of 2017. In the first months of 2018, the yield has risen by a further 50 bps to 2.9%, driven by expectations of stronger US growth and inflation, higher base rates, new and substantial unfunded fiscal stimuli and major tax reforms.


The global contribution. The US may have started the ‘ball rolling’, but central banks in other advanced economies have joined in normalising monetary policy by raising base rates, winding down QE and removing other emergency measures implemented to prevent a deep recession from progressing into a sustained depression. Collectively these emergency measures resulted in the injection of over $10tn into national banking systems. This amounts to almost half of US annual GDP, or around 15% of global GDP.


CUMULATIVE QE ASSET PURCHASES UK 6 ECB US1 JPN


4


2


0 2009 2010 2011 2012


¹US data includes MBS holdings Sources: Bank of England, ECB, FRB (NY), Bank of Japan


2013 2014 2015 2016 2017


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When will the tide turn on commercial property? MIPIM 2018 | Colliers International


$trillions


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