The European Central Bank on Thursday went further than expected in its attempts to counter the threat of euro zone stagnation. ECB President Mario Draghi cut interest rates and signaled his intent to launch a program to purchase asset-backed securities and covered bonds. More negative deposit rates, which fell to -0.2 percent from -0.1 percent, should encourage commercial banks to take reserves out of the ECB and put them into the economy rather than pay to park bank deposits at the ECB.
With euro zone inflation less than one quarter of its target, the ECB has been under pressure to act. Dr. Draghi deserves credit for clearing the path toward quantitative easing in Europe-no mean feat considering the skepticism that has been emanating from some quarters. While some commentators may argue that the ECB's program does not look quite like the QE we saw here in the United States, the reality is if it walks like a duck and quacks like a duck, it's a duck.
Meanwhile in Japan, Prime Minister Shinzo Abe appointed Yuko Obuchi as the country's first female minister of trade and industry. Obuchi's appointment to a ministerial position of such importance is highly symbolic and underscores Dr. Abe's intention to expand the Japanese workforce by increasing the participation rate of women, a critical component of his three-arrow approach to reinvigorate the Japanese economy. This may well signal a major cultural shift in Japanese society, in which women tend to be underrepresented in leadership roles, and it certainly has broken the glass ceiling. In the words of Bob Dylan, "The Times They Are a-Changin.'"
The third piece of the puzzle is that in the United States the voting members of the Federal Open Market Committee in 2015 will be even more dovish than the current committee. If there is a risk, it is that the Fed will keep monetary policy at a high level of accommodation for longer than previously anticipated.
For investors, the aggressive accommodation in Europe, Abenomics pushing ahead in Japan, and a dovish U.S. Federal Reserve at home all bode well for equities and bond prices.
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