Monetary policy is (barely) carrying the world

July 2016

Even though monetary policy remains incredibly easy, with negative rates in some countries, inflation expectations continue to drift lower. Global bond yields have been trending downward because of structural forces such as lower trend growth, demographics, and debt deleveraging rather than reactions to events such as “Brexit.” Extraordinary global monetary actions have not been able to offset these deflationary pressures. The perception is growing that monetary policy in several developed economies is reaching its limits.
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U.S. economy will bend, not break

March 2016

Since the start of 2016, investors have grappled with market volatility spurred by concerns about China, oil prices, the strength of the U.S. dollar, and Federal Reserve policy. The recent equity market correction has raised concerns about the risk of a U.S. recession. However, global equity market corrections tend to produce false recession signals, and we believe the current market volatility was such an occurrence. History shows a mixed track record for the market in predicting recessions, with as many hits as misses since 1960.
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A look back before looking ahead: Assessing our 2015 outlook

November 2015

Vanguard has been publishing an annual economic and investment outlook for a number of years. We believe that to treat the future with the deference it deserves, our market forecasts are longer-term and best viewed in a probabilistic framework rather than the traditional “point forecast” approach. This publication reflects on and assesses how our outlook published in December 2014 has tracked so far in 2015.
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China’s key risk: It’s housing, not stocks

September 2015

Much of the recent volatility in China’s stock market stems from renewed concerns about an economic hard landing (growth below 4%). Despite elevated volatility in China’s stock market, only about 9% of household wealth is invested in equities, versus 36% in the United States. Our view remains that China’s slowdown and excess capacity will generate deflationary impulses worldwide, and investors should expect periodic and sharp volatility. However, that volatility should not damage global growth too significantly as long as the United States and Europe continue recovering and China avoids a housing market crash.
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U.S. labor market: Tight (enough) for liftoff

June 2015

The “tightness” of the U.S. labor market is a primary determinant of when—and at what pace—the Federal Reserve will raise short-term interest rates for the first time in almost a decade. While debate over the tightness of the labor market continues, our framework points to a rate hike by the Federal Reserve at some point in 2015.
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Japan: The long road back to inflation

April 2015

Japan has suffered two lost decades of weak growth and poor equity performance. Although policymakers have tried a number of tools to revive the languishing economy and banking system, they have proved ineffective. Sustained inflation expectations and wage growth are keys to reflating Japan’s economy. To anchor inflation expectations, the Bank of Japan remains firmly committed to monetary easing and is counting on higher wage growth to achieve its ambitious inflation target.
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Remember the ’90s? Emerging markets then and now

April 2015

Macroeconomic conditions today are similar to those of the 1990s and some concern is warranted. Two headwinds to emerging market growth—lower commodity prices and the relative strength of the U.S. dollar—are evoking comparisons between emerging market crises of the 1990s and the current situation. However, fundamentals don’t suggest that a 1990s-style crises is on the horizon.
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Is the barrel half empty or half full? Oil-price drops and global impacts

February 2015

Not all oil-price movements are created equal. The price of crude oil is driven by three key factors: oil supply, demand, and strength of the U.S. dollar. The degree to which these factors drive price fluctuations is unique in each instance. Depending upon the cause and perceived persistence of the fall in oil prices, the International Monetary Fund has estimated the potential for these drops to have a positive impact on global growth in 2015.
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Europe’s economy: A long haul

November 2014

Europe’s economy is risking a Japanese-style decade of near-zero growth and deflation. While debt is not especially high in the aggregate euro area when compared with those of the United States or the United Kingdom, there’s also no appetite for more fiscal stimulus. Experience in the United States and United Kingdom suggests that if deflation is to be avoided, the European Central Bank’s balance sheet may need to expand even further, which could present challenges.
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China: Slowdown possible, financial crisis less so

October 2014

China’s rapid, less discriminating pace of debt expansion is a concern. However, the odds of a 1990s-style emerging-market financial meltdown are low. The surge in domestic debt isn’t necessarily a sign of overleverage. While property-market concerns point to economic slowdown, risks of a financial spillover are low.

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Rate liftoff: It’s not ‘easy’ being the Fed

September 2014

Is lingering weakness in the labor market structural or cyclical? Indicators differ. Importance of slack lies in its impact on all components of federal funds rate. The Federal funds rate liftoff and end point depend on how slack is viewed. For now, neither view may justify markedly higher bond yields.
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No bubble to burst: U.S. student debt is not housing

August 2014

U.S. student loan debt now exceeds $1 trillion. Taking a macro view, this debt growth is too small to repeat a debt crisis such as that of 2007–2009. From the micro view, student debt matters for the housing market, as does the education level reached. The return on investment for education is—and will remain—high.
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Higher inflation? Follow the money . . .

June 2014

We view wages as a real-time indicator of the amount of slack in the market. Wage growth is not inflationary yet. There are minimal wage pressures across the United States. The Fed’s target of stable inflation and full employment is in view, and may be closer than it appears.
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