Research Team at ING, suggests that the perception that global recession is not imminent has enabled markets to rally. Key Quotes “But there is still a palpable sense of unease. There is real concern that after the Plan A of zero interest rates, the Plan B of quantitative easing, the Plan C of negative interest rates may enjoy no more success in boosting growth and inflation. More radical policy options, generally involving an element of fiscal stimulus, are being openly talked about, but typically come with too much unwanted political baggage to be practicable. The fact that Plan C is even being talked about in the US is remarkable, given that the Federal Reserve (Fed) only recently began reversing Plan A as well as B, signalling that December’s rate rise would be the first of a series. While the markets have back-tracked from last month’s premature calls of recession, the latest crop of headline economic figures have tended to flatter the underlying story, leaving economy’s direction unclear. We doubt the Fed will be sufficiently motivated to hike rates against such a murky backdrop. One of the excuses for not hiking rates again already has been the tightening of financial market conditions. Despite low policy rates, such broad measures of financial tightness remain an excuse the ‘doves’ can use for further inaction. Having virtually promised to do more easing at its March 10th meeting, the European Central Bank (ECB) faces the problem that simply doing more of the same may backfire as it did in Japan. Some combination of additional quantitative easing and tiered negative rates, bolstered by mitigating policies for the banking sector, seems the most likely set of measures. How markets receive this is another matter. The market reaction to the Bank of Japan’s adoption of Plan C has been far from what Gov. Kuroda was hoping for, with JPY stronger and interbank lending falling. At its next meeting, the BoJ faces a dilemma. Another rate cut now risks making the situation worse, but if market expectations build, they will also be wary of under delivering.” For more information, read our latest forex news.