Newell Palmer: Monthly Economic Notes – October 2019

Economic Overview

Globally, we have seen weak economic growth, and increasing fears of a slowdown or a possible recession in the next few years.  As such, central banks have taken action to support the economic expansion by reducing interest rates.  With European, Japanese and Australian interest rates at either negative yields or very low yields, central banks have reached the limits of conventional monetary policy.  This leaves them with unconventional monetary policy such as quantitative easing (i.e. buying bonds) to further reduce long-term interest rates.  Increasingly, central banks have now said that it is up to governments to start introducing fiscal stimulus, e.g. tax cuts or increased government spending, to complement monetary policy.  Among the major developed economies, only the US has a positive nominal interest rate at 1.8%, but as the US Federal Reserve continues to reduce interest rates, a fiscal policy response may also be required in the US if the economy deteriorates.