Courtesy of Doug Short.
The big economic news today is the ECB’s announcement of a quantitative-easing program of 60 billion euros per month starting in March and lasting until September 2016. That’s a total commitment of over 1 Trillion euros. This announcement comes nearly three months after the US Fed ended its last round of QE. Note: See the full details here.
With the focus now on the European Central Bank, let’s take a quick look at a couple of items in the January Wall Street Journal survey of economists, starting with where the Federal Reserve is headed with the Fed Funds Rate, which is currently at 0.12 percent.
The January survey was sent to 70 economists. Here is a table showing the major response statistics — Low, Median (middle), Average (aka Mean) and High — at six-month intervals from June 2015 to December 2017.
Here is the equivalent table showing the forecasts for the 10-year Treasury Note yield, which closed yesterday at 1.87 percent.
Since a picture is worth a thousand words, here’s a short visual essay illustrating the forecast averages for the two series.
The ECB is bringing out what the popular economic press has referred to as its “QE bazooka”. The goal is to stimulate the economy and move from its current deflationary state to a target inflation rate of two percent. Meanwhile, the economists in the WSJ survey have a rather optimistic view of the US economy, which they see strengthening enough to send the Fed Funds Rate above two percent at some point in the second half of 2016. The yield on the 10-year Treasury is expected to rise by over 60 basis points by June of this year and to be up a full percent by year’s end.
What will the future bring? I’m reminded of the 1956 Academy Award winner for best song: Que Sera, Sera (Whatever Will Be, Will Be), immortalized by Doris Day. Will the eurozone be lifted from its economic funk? Will the 10-year Note yield be back at 4 percent by the end of 2017? Only time will tell.
