Central banks low interest rates have led to asset prices taking off and raising rates is not an option. Get set for the Fed to turn to other types of policy.
For the first time since 1993 a basket of six globally significant financial asset indicators has rallied in unison for the first half of the year.
The Dow Jones Industrial Average was up 1.7 per cent for the year – hardly spectacular but the fourth consecutive first-half rise.
According to The Wall Street Journal, gold notched up a 9.7 per cent lift. The Dow Jones UBS Commodity Index recorded an 8.1 per cent rise, while 10-year US Treasury notes climbed 6.4 per cent. The MSCI World Index of developed-worldshares was up by 4.8 per cent and the MSCI Emerging Markets Index by 4.3 per cent.
Such correlation is unusual, but not a great surprise when you consider where official short-term rates are presently fixed by central banks. Last week Reserve Bank Governor Glenn Stevens told an economics conference that Australian interest rates for both savers and borrowers were now at a 50-year low. "Moreover," he said, "we still have 'ammunition' on interest rates – we have not got close to the zero lower bound that has afflicted some other countries."
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