Federal Reserve hawks, quantitative easing critics and central bank conspiracy theorists have plenty to grumble about over the last week.
On Tuesday, the Bank of Japan maintained the easy-money policies of “Abenomics” and remained upbeat despite signs of an economic slowdown in the Asian powerhouse.
This comes on the heels of new Fed chairwoman Janet Yellen appearing before Congress to state that low interest rates and loose monetary policy could persist even after near-term targets for unemployment or inflation are met.
Click to Enlarge The one-two punch of both Japan and the U.S. talking easy money should not be lost on market historians, who know Japan has punished savers with rock-bottom rates for nearly 20 years … and who fear the U.S. may be going down the same path.
So are QE and ZIRP are here to stay forever?
They could be, writes Cullen Roche of Pragmatic Capitalism:
“The interesting thing about this potential world is that it means QE is the new policy tool of choice. In other words, QE could potentially replace interest rate policy as the primary policy variable. …
Investors have to come to grips with the potential reality that QE is not a temporary event. It could very well become a sustained policy process.”
Those who have seen interest rates tick up slightly in recent months after the start of “tapering” may be inclined to think interest-bearing assets will be on the rise soon.
However, it’s important to look at Japan’s struggles in sparking reflation and the fact that a zero rate environment can persist for a long time.
The million dollar question, of course, is what happens when rates are at the bottom and the Fed is buying bonds … but the economy still isn’t growing.
What happens then for stocks and U.S. monetary policy is anyone’s guess. But it probably will not end well for those who have been riding the easy money in the S&P and Nikkei to recent highs.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.