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Will US Fed unleash looser monetary policies that can trigger a surge in financial markets?

The Financial Express logo The Financial Express 22-03-2023 Sunil Dhawan
Investors prepare for the next rally ahead of central bank meetings. © Provided by The Financial Express Investors prepare for the next rally ahead of central bank meetings.

Investors are ready to build their investment portfolios with new money amid a growing consensus that looser monetary policies are coming which will boost financial markets, says the CEO of one of the world’s largest independent financial advisory and asset management organisations.

This assessment from Nigel Green of deVere Group comes ahead of critical policy meetings this week at the US Federal Reserve and Bank of England.

It also follows the Fed and five other major central banks announcing, in a coordinated joint statement, fresh measures to improve global liquidity. The central banks said the move served as an “important backstop” to ease strains in global funding markets.

Green comments: “Global markets remain jittery from the turmoil caused by the fallout of the crises hitting Silicon Valley Bank, Signature Bank, Credit Suisse and First Republic Bank.

“There are fears of runs on other banks as other lenders could find themselves in trouble after rises in interest rates left some harbouring major losses.” The deVere CEO continues: “The coordinated action being taken by the US Federal Reserve, the Bank of England, Bank of Japan, Bank of Canada, the European Central Bank and Swiss National Bank launched on Monday to keep credit flowing in the serious issues affecting the banking sector, show that they are willing to do whatever it takes to avert a crash.

“Investors are taking this as a sign that central banks will now ease off interest rate hikes. Looser monetary policies will trigger a surge in financial markets. Not wanting to miss out on the next rally, clients are now telling our consultants around the world that they want to build-up their investment portfolios with new money,” adds Green.

Looser monetary policy increases liquidity in the markets, stimulates economic activity, and boosts investor confidence, all of which can contribute to higher stock prices.

The next Federal Open Market Committee (FOMC) meeting is scheduled for March 21 and 22. The US Fed rate hike decision will be announced on March 22 at 2 pm (ET) followed by a press conference.

Meanwhile, the Bank of England will meet on Thursday and hold a press conference at noon in London.

“Central banks have the unenviable task of trying to cool stubbornly high inflation and restore financial stability,” says Nigel Green.

He concludes: “It seems that investors are gripped by the Fear Of Missing Out. They’re looking past interest rate hikes and assuming that the chaos in the banking sector will unleash looser monetary policies from central banks, which will be fuel for the markets.”

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