Interest Rate Comments from Morgan Stanley Chief Economist

"As always, central banks are in ultimate control of the liquidity spigot. And policy ‘normalization’ is now the over-arching objective for the Federal Reserve, the European Central Bank, and the Bank of Japan. For different reasons, each of these monetary authorities had to run policies of extraordinary stimulus in recent years — the Fed in response to the post-bubble shakeout of 2000-01, the ECB in response to Europe’s fierce structural headwinds, and the BOJ in response to nearly a decade of corrosive deflation. With those risks perceived as now subsiding, all three central banks are seeking to end their extraordinary accommodation and put their policies on a more neutral setting. The Fed has obviously made the most progress in doing so, whereas the increasingly tough-talking BOJ has yet to act. The ECB is somewhere in-between. But there can be no mistaking the endgame that is now coming into focus: To the extent that a powerful upsurge in the global liquidity cycle has been fueled by extraordinary monetary accommodation, those days are coming to an end."

Stephen Roach