The Bank of Japan's move on Tuesday was the beginning of the end of its role as the global liquidity backstop/support to Western world economies. And with that, as we discussed, global central banks may now have less leeway to hold rates too high, for too long.
That said, although the Fed didn't budge on policy yesterday, Jerome Powell did say (twice) that an "unexpected weakening in employment would warrant a policy response." And he did discuss the strategy to end quantitative tightening, and the related risks of liquidity problems — and he voluntarily brought up the 2019 cash crunch, where the Fed's first ever attempt at quantitative tightening induced a liquidity shock.
So, if there was any doubt going into the Fed meeting about whether or not the Fed was entertaining the idea of another rate hike, there should be no doubt now.
And if there were doubt on whether or not this easing cycle would materialize, there shouldn't be now. Why? Because the easing cycle was kicked off this morning in Switzerland. In a surprise move (for markets) the Swiss National Bank cut rates by a quarter point.
As we've discussed here in my daily notes, the major central banks of the world have coordinated closely throughout the crises of the past 15 years. They all went to ultra-easy emergency level policies in response to the pandemic, and now all (exception Japan) have interest rates set ABOVE the rate of inflation (restrictive territory).
And they will all be cutting rates, in coordination, in the coming months, mostly to ensure that global liquidity doesn't become too tight, and (related) that their respective government bond yields (borrowing rates) don't run away (higher).
