The idea being that the economically stronger countries, chiefly the United States and the United Kingdom, would set about rate hiking cycles while their QE programmes faded into memory. Meanwhile the likes of Europe and Japan would make further cuts to interest rates while ramping up QE.
The QE part of the equation has come to pass but not the rate hiking. The QE aspect is more ambiguous in any case because it is not so much that central banks are diverging in their approach as that the US and UK were quicker of the mark and have therefore reached the end of their programmes a lot sooner.
Earlier this month the Bank of England’s Monetary Policy Committee minutes revealed that the two members who had been in favour of a rate rise had returned to the pack to make it nine to zero in favour of holding steady. This was widely interpreted as signally another big kick of the can down the road.
Then this week the Federal Reserve in the US also made fresh dovish comments effectively reinforcing its views that inflation is on the slide rather than rising and it will remain ‘patient’ on raising rates.
The big spanner in the works to what sounded a very plausible scenario of central bank divergence has been the large drop in the global oil price which has pulled the rug out from under any burgeoning inflation.