Following a raft of interest-rate cuts in the third quarter of 2019, the loosening monetary trend continued into the fourth quarter as central banks – including the US, Australia, South Korea, Brazil, Ukraine and Turkey – reduced their key rates.
- The Fed cut interest rates for the third time this year
- Concerns remain over the outlook for Germany’s economy
- Global growth is forecast to slow to its lowest rate since 2012, according to Fitch
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Following a raft of interest-rate cuts in the third quarter of 2019, the loosening monetary trend continued into the fourth quarter as central banks – including the US, Australia, South Korea, Brazil, Ukraine and Turkey – reduced their key rates. During October, however, the International Monetary Fund (IMF) warned that the current environment of low interest rates is encouraging investors “to take more chances in a quest for higher returns, so risks to financial stability and growth remain high in the medium term".
“We see the current stance of policy as likely to remain appropriate” (Fed Chair Jerome Powell)
The US Federal Reserve (Fed) reduced its key federal funds rate for a third time this year at the end of October, following earlier reductions in July and September. Fed Chair Jerome Powell indicated that policymakers are not considering further loosening in the current cycle, stating: “We see the current stance of policy as likely to remain appropriate”. However, President Donald Trump – who has made no secret of his low opinion of the Fed’s strategy – tweeted: “The Fed doesn’t have a clue! We have unlimited potential, only held back by the Federal Reserve”. Over October as a whole, the yield on the benchmark US Treasury bond remained broadly unchanged at 1.66%, but rose as high as 1.85% and fell as low as 1.52% during the month.
Germany’s benchmark Government bond yield reached its highest level for three months during October. Investors were cheered by mounting hopes of a resolution to the trade conflict between the US and China, and by the news that another Brexit extension had been agreed. Nevertheless, there are still broader concerns surrounding the economic outlook for the eurozone – and for Germany in particular – against a backdrop of slowing economy growth and a manufacturing downturn. The benchmark German Government bond yield remained in negative territory during October, but strengthened from -0.78% to -0.63% over the month.
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