Writing in Wednesday’s edition of the Financial Times, he predicted that the central bank would have to abandon its quantitative easing plan, which would undo previous stimulus measures by shrinking the Fed’s balance sheet. Instead, the Fed will return to its quantitative easing plan, lifting stocks, he added.
“Investors should therefore expect continued headwinds from global liquidity rather than last year’s severe headwinds. This could turn out to be good for equities but less favorable for bond investors,” Howell said.
Despite the predictions of the upcoming shortage of funds, the liquidity cycle has already passed its bottom and will show an upward trend in the coming years, he said.
Howell noted that the Fed and other central banks pumped liquidity into the global financial system earlier this year during the spring banking turmoil caused by the collapse of Silicon Valley Bank.
But in the coming years, they will probably have to bail out indebted governments as well
– he warned.
According to Howell, about seven out of eight dollars flowing through global markets is already being refinanced into debt. And an ever-increasing share of the remaining dollars goes to increasing government deficits.
This is because advanced economies are under renewed pressure to expand public spending as a refocus on military needs and demographic changes strain budgets, he explained.
In a world of excessive indebtedness, large central bank balance sheets are a necessity. So forget QT, quantitative easing is back
– written by.
Cover image: Getty Images