Why a Japan-style Europe looks increasingly likely

Why a Japan-style Europe looks increasingly likely

With the US economic recovery becoming more established and the tapering of QE already in progress, investor attention is turning to the expected path of the Federal Funds Target Rate (FFTR).

The question of the timing of the first FFTR rise is pivotal for bond investors, because it is likely to have a big impact on short-term bond performance. Over the longer run, however, what will matter much more will be the level the FFTR settles at when the hiking cycle is complete. One of the basic tenets of macroeconomic theory is in the long run, the steady state for short-term rates or the neutral interest rate for any economy is essentially the same as the nominal rate of economic growth. Long-term nominal economic growth is composed of real economic growth plus inflation. It fo...