InfraCap Report Update, New York, NY ~ The team at Infrastructure Capital Advisors tracks the Global Monetary Base, defined as currency in circulation plus bank reserves, as an indicator of current and future interest rates. This article provides data and insights for 2024 September data released in October.
September Global Monetary Base (GMB):
GMB was down 0.7% in September and was lower by $520 billion over the last twelve months. We believe that tight global monetary policy was the key driver of higher global rates and not the increase in US treasury issuance. Our view is supported by the fact that U.S. and global rates dropped by over 12 basis points in September, as it became apparent that the Fed’s tightening cycle was over.
We expect that the GMB will stabilize over the next quarter and start growing in 2025 as the European Central Bank (ECB) and the Peoples Bank of China (PBOC) are forced to ease monetary policy in response to a recession in Europe and slow growth in China. Eurozone GDP increased 0.2% in the second quarter of 2024, compared to expectations of 0.3%. Low European growth is not surprising considering the ultra-tight ECB policy and the absence of the positive dynamics that are supporting the US economy, including an 80% cost advantage in natural and gas and electricity costs, counter-cyclical infrastructure spending, and a shortage of homes available for sale.
If the Global Monetary Base remains flat through the beginning of 2025, we expect interest rates to also stabilize and decline in the first half of 2025 as central banks cut rates in response to slow or negative growth. Declining global interest rates and a flat to increasing GMB will support the global stock and bond markets.
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