InvestmentWatchBlog – Mega Market Alert: Investors Are Preparing For An Imminent Loss Of Central Bank Control, International Reserves Topping Out, Economic Activity Is Poised To A Slowdown – 9 September 2013

InvestmentWatchMORGAN STANLEY: Many Of Our Clients Are Preparing For An Imminent Loss Of Central Bank Control

…And while the Fed is in the spotlight, it’s not the only central bank that is trying to lean more heavily on forward guidance these days – these “open-mouth operations” are currently all the rage at the Bank of England, the European Central Bank, and the Bank of Japan as well.

However, investors don’t think central banks will be successful with these new forward guidance tactics, which are expected to ramp up soon.

“Most clients I met buy our story that the Fed, the Bank of England and the ECB will step up their efforts to push back on expectations of earlier and faster rate hikes in the next few weeks and months,” says Morgan Stanley global head of economics Joachim Fels in a Sunday note. “However, many doubt that Bernanke, Carney, Draghi & Co will be successful in their forward guidance efforts in the face of further improvements in the economic data.”

In other words, despite continued efforts by central banks to keep interest rates low, improving economic conditions will force interest rates up.

For his part, Fels disagrees.

“Too much is at stake for central banks in terms of credibility and there are various ways to make forward guidance more precise and more forceful, including a lowering of the unemployment threshold and/or the introduction of a lower threshold for inflation, below which a rate hike will not be considered,” says the Morgan Stanley economist.

Read more:

Is economic activity in the US about head to the next level higher? If you think so, please consider a chart from my friend “BC”: Weekly real year-over-year growth of bank lending per capita and real final sales per capita.

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