Withdrawal of (global) monetary stimulus
The gradual withdrawal of (global) monetary stimulus is largely due to the fact that the Federal Reserve will continue to
hike its key rate, the Fed funds target rate, this year and slowly reduce its huge holdings of Treasuries and mortgage-
backed securities (MBS).
We forecast four rate steps of 25 bp each for 2018, which will bring the Fed funds target rate to
2.375% by the end of the year (currently: 1.375%). In addition, the Fed plans to stepwise increase the amount of maturing
securities which will not be reinvested to c. USD 50 bn per month by October 2018. As a consequence, the balance sheet
total is likely to decline prospectively by c. EUR 600 bn each year. While the euro area is still far away from a balance
sheet reduction, the ECB will probably terminate its increasingly controversial bond purchasing programme this year. We
believe that the ECB will extend the programme one last time beyond September, but then stop it by the end of 2018. In
fact, we expect the bond purchases to be reduced to EUR 10 bn per month in the final quarter of 2018 (from currently EUR
30 bn).
Moreover, the ECB will probably hike its main refinancing rate by mid-2019 for the first time since 2011. In the UK,
too, the Bank of England stopped purchasing gilts in March 2017; it has since raised its key rate from 0.25% to 0.5% due
to increased wage pressures. Only in Japan will the Bank of Japan (BoJ) stick to its extremely expansionary course and
boost the central bank’s balance sheet further.
EU Forecast
euf:ba18h:84/nws-01