KWB’s Economic Snapshot: Navigating Business Trends
Central banks around the world continue to use a variety of methods to provide easier access to money to all sectors of the economy.
This “liquidity” allows governments and corporations to borrow funds at lower interest rates. In turn, borrowers can use these funds to enhance asset values and to stimulate job growth.
In the US, the Federal Reserve is keeping interest rates at historically low levels, while increasing the amount of money available for investment into the economy. This has the effect of increasing money supply and lowering the value of the US dollar, and as a result, increasing the potential for inflation.
The European Central Bank (ECB), on the other hand, is also maintaining low interest rates but they have chosen to keep the amount of money in the economy relatively stable throughout the European Union (EU). Effectively, they are increasing the amount of money in some areas while reducing the amount of money in others. The desired outcome is to stimulate certain economies of the Euro zone without devaluing the currency or increasing the potential for inflation.
In the months ahead, we expect to see commodity (oil and gold) prices rise as the US dollar falls. The lower US dollar allows US companies to be very competitive globally. With the expectation of an economic recovery it is anticipated that unemployment would drop in the US. We will have to be on the watch for inflation, especially in the US, once job creation rebounds.
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Thanks to Jane Alm of the Angus Watt Advisory Group at National Bank Financial for providing much of this content.