Bold moves, tepid gains: Have central banks met their limit?

The protesters, who want the Fed to extend its economic stimulus campaign, are scheduled to meet today with eight members of the central bank's policymaking committee. Those officials "judged that the economic outlook and below-target inflation supported maintaining the current accommodative stance of monetary policy", according to minutes.

Markets are used to playing a guessing game.

The President of Federal Reserve Bank of Boston, Eric Rosengren, Loretta Mester of Cleveland Fed, Jeffrey Lacker of Richmond Fed, John Williams of San Francisco Fed, Esther George of Kansas City Fed, Patrick Harker of Philadelphia Fed, Robert Kaplan of Dallas Fed, and James Bullard of St. Louis Fed voted in favor of 25 basis points rate hike.

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The paper uses the Fed's standard USA economic model and exposes it to a negative shock to push the unemployment rate up by 5 percentage points. The unemployment rate, the Fed's traditional measure of labour market slack, has been stuck at around 5 per cent for almost a year. "And if they do do that, and they need to loosen policy, they haven't got far to go given how close they are to the zero lower bound".

"I think there needs to be some material discussion of a consensus, an understanding, that central banks can't constantly compete against each other, driving their currencies lower, driving interest rates lower, whether that's sustainable".

Drawing upon simulations from the paper itself, the Citigroup strategist argues the large‐scale asset purchases and forward guidance about the future path of the Federal funds rate would "have nearly no ability to offset a shock in current circumstances", citing the fact that policy rates are likely to be coming off a lower base than the paper projects.

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In addition, USA citizens residing in Iran should monitor the news and evaluate the risks of remaining in the country. Thing is, Iran's been doing this for years.

In light of these three factors, the Fed's decision to keep rates low in 2016 makes a lot of sense.

A relaxed setting, but the conversation's likely to be anything but.

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