- The world economy is expected to grow at 3.1 percent in 2017. Developing economies are expected to grow at 4.5 percent and advanced economies at 1.9 percent.³ The dollar has increased more than 20 percent over the past 2½ years. The strong dollar will likely continue to put some downward pressure on inflation. Overall, the global environment doesn’t seem to be sending a strong signal for a change in U.S. interest rates.
- Adjusting the federal funds rate is the primary policy tool for the FOMC to ease or tighten monetary conditions. However, as a result of the Federal Reserve’s quantitative easing programs, we have an expanded balance sheet of approximately $4.5 trillion. I do not believe adjusting the balance sheet should be a regular policy tool. Instead, I believe we should begin the normalization process soon. The first step to normalizing the balance sheet, in my view, is to publish a detailed plan of how exactly we will shrink the balance sheet and when that roll-off will begin. I think it is imperative that we give the markets time to understand the details of the plan before it is implemented. And while it is likely the announcement of that plan will not trigger much of a market response, we don’t know that for certain. The announcement of our balance sheet plan could trigger somewhat tighter monetary conditions. In that case, that announcement could be viewed as a substitute for a federal funds rate increase, whose magnitude is uncertain
- At the moment, although stock prices, housing prices and especially some commercial real estate prices appear somewhat elevated, they do not appear to pose an immediate financial stability risk. Yes, stock prices have risen further since the last FOMC meeting. But our job is not to keep the stock market from climbing or from falling. The key question is, will a market correction trigger economic instability? It will cause pain for investors, but the likelihood of a correction triggering a financial crisis is low. While houses can be levered 5 to 1 or higher, stock market investors generally have far less leverage. The much lower leverage supporting equity investments should reduce the contagion risk if markets correct.
... companies can navigate political risk and play a first mover role in markets that others may dismiss as the opportunity doesn’t come neatly packaged.
“Frontier waters may be choppy but if you understand the winds, you’ll move quickly,” says Courage. He advises that rather than lamenting heavy-handed regulation, firms must proactively engage governments to build understanding of their business models and the contribution that their industry and their company can make towards catalysing economic development and creating new sub-sectors of economic activity. “It’s a critical step in bridging the trust deficit that often undermines mining investments.”
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