Total assets held by major central banks are above $20tn. While Fed’s balance sheet has stabilized, the balance sheets of ECB, Bank of Japan and Bank of China have been increasing steadily.
Of course, the reduction in Fed’s balance sheet, expected to effectively start in 2018, will have a material impact on financial markets – the recent spike in volatility might be seen as a sort of recognition of that fact.
But global monetary base is still growing, which will in the end limit the potential for higher rates going forward and sustain high valuations in financial markets.
I attended a quite interesting presentation yesterday organized by Schroder on emerging markets. Two fund managers presented on equities and debt. The head of EM debt absolute return strategies had a very interesting analysis of the current environment.