Chart 2: U.S. Fed Funds Ratea

Source:, Federal Reserve

GLOBAL CENTRAL BANK POLICIES ALSO ACCOMMODATIVE It is estimated that over $16 trillion worth of the global debt market has negative yields, which means some investors are becoming so risk adverse that they are willing to pay to hold bonds. And it appear that these negative yields are likely to become even more negative, as additional stimulus is needed in Europe and Japan. Also, countries that have positive interest rates are lowering them to varying degrees, or are in a frame of mind to do so. The European Central Bank at its September 12th policy meeting reduced its deposit rate by 10 basis points to a record low negative 50 basis points and promised that interest rates would stay low for longer. Also, the central bank of the euro zone is restarting a quantitative easing program that it just phased out last December by restarting bond purchases at a rate of 20 billion euros a month ($22 billion) starting on November 1st =. The new quantitative easing program will “run for as long as necessary,” according to the ECB. Officials recently said the central bank won’t hesitate to “consider” easing, if the economy loses momentum towards hitting its price target.

The Bank of Japan also has a negative interest rate policy rate and its interest rates are likely to become even more negative. Bank of Japan Governor Haruhiko Kuroda recently said it could “certainly” cut rates again, if needed. In addition, the Bank of Japan deputy governor said the central bank must “patiently continue” its powerful monetary stimulus to maintain momentum toward achieving 2.0% inflation, as the downside risks from overseas economies mount.

LOW GLOBAL INTEREST RATES REMAIN A MAJOR TAILWIND The fed funds rate and interest rates overseas never got high enough to reverse the bull market in stock index futures. The rule of thumb about not fading the Fed did not work when the still near record low interest rates in the U.S. and overseas was taken into consideration. With some overseas interest rates remaining near or at historical lows and in many countries interest rates are becoming more negative, there is plenty of accommodation in the domestic and international banking systems. The Federal Reserve is now on a path of easier credit conditions with two fed funds rate cuts already taking place in 2019, and probably one more before the end of the year. With global interest rates remaining at or near historically low levels, my view remains that the global reflation scenario is on track and easier credit policies from most of the world’s central banks, including the Federal Reserve, are coming and will be the dominant fundamental that supports U.S. stock index futures in the long term.

Therefore, in light of the global accommodative interest rate policies, including the Federal Reserve’s newly found need for more accommodation, I am now fully on board with the rule of thumb of “Don’t fight the Fed.”

Higher prices are likely for U.S. stock index futures . Alan Bush

E: T: 001 312 242 7911

15 | ADMISI - The Ghost In The Machine | November/December 2019

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