• Home
  • Pro
  • Partners
  • Help and support
  • English (UK)
Pepperstone logo
Pepperstone logo
  • Ways to trade
    • Spread betting

      Bet on global price movements in £ per point

    • CFD trading

      Trade on 1000s of assets without owning them

    • Pricing

      Discover our tight spreads, plus all other possible fees

    • Risk management
    • Trading accounts
    • Trading hours
    • 24-hour trading
    • Maintenance schedule
  • Markets
    • Forex

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Indices

      Enjoy 24-hour pricing on the UK100, US30 and more

    • Commodities

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Shares
    • ETFs
    • Currency indices
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
  • Trading platforms
    • TradingView

      Trade through the world-famous supercharts with great pricing

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
  • Market analysis
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

  • About us
    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online
    • Spread betting

      Bet on global price movements in £ per point

    • CFD trading

      Trade on 1000s of assets without owning them

    • Pricing

      Discover our tight spreads, plus all other possible fees

    • Risk management
    • Trading accounts
    • Trading hours
    • 24-hour trading
    • Maintenance schedule
    • Forex

      Get great rates on majors like EUR/USD, plus minors and exotics

    • Indices

      Enjoy 24-hour pricing on the UK100, US30 and more

    • Commodities

      Trade on metals, energies & softs, with oil spreads from 2 cents

    • Shares
    • ETFs
    • Currency indices
    • Dividends for index CFDs
    • Dividends for share CFDs
    • CFD forwards
    • TradingView

      Trade through the world-famous supercharts with great pricing

    • MetaTrader 5

      Explore the apex in trading automation with our execution tech

    • The Pepperstone platform
    • MetaTrader 4
    • cTrader
    • Trading tools
    • Navigating markets

      Latest news and analysis from our experts

    • The Daily Fix

      Your regular round-up of key events

    • Meet the analysts

      Our global team giving your trading the edge

    • Who we are

      Pepperstone was born from the dream of making trading better

    • Company news
    • Company awards
    • Protecting clients online
Monetary Policy

Macro Trader: The New Policy Regime

Michael Brown
Michael Brown
Senior Research Strategist
1 Mar 2024
Share
Taking a broad view of proceedings, it’s clear that we have moved into a new regime in terms of monetary policy, as post-covid inflation continues to fade, and policy begins to normalise.

In order to contextualise this new regime, it’s worth framing the policy picture more broadly, using the two main tools in the central bank toolkit – overnight interest rates, and the balance sheet. At a basic, and perhaps over-simplified level, we have had three regimes since the turn of the millennium:

  • Pre-GFC existed a regime where rates were set somewhere near 5%, well into restrictive territory, while the balance sheet and asset purchases were not used as a policy tool in the way with which we are now familiar
  • Post-GFC, and immediately post-pandemic, the regime shifted to one where rates were pinned at, or as near as makes no difference at, the zero lower bound, with seemingly infinite QE, and ever-expanding balance sheets, doing most of the heavy lifting in terms of policy stimulus
  • And, now, in the post-covid world where disinflation continues, we look set to shift to a regime where rates move back to a more neutral level (probably around 3% on a nominal basis), and central bank balance sheets remain at incredibly lofty levels, well above where they sat pre-covid
Preview

Naturally, this second regime change begs the question as to what its consequences are likely to be.

In many ways, at least in the short term, such an environment could prove to be the ‘best of all worlds’ for riskier assets. Naturally, a less restrictive policy stance should provide a fillip to equities, while also loosening financial conditions more broadly, thus providing further support to the idea of a ‘soft landing’. Furthermore, one must remember that said rate cuts will come with the Fed’s balance sheet settling at a level considerably above $7tln once quantitative tightening comes to an end – 7x bigger than pre-GFC.

That’s an extra $7 trillion of liquidity that will now remain, likely permanently, in the financial system, providing a further backstop to the equity market. In turn, this should keep levels of equity vol relatively low, with a sub-15 VIX perhaps becoming the ‘new normal’. Furthermore, perhaps traditional valuation metrics matter less than they have in the past, given how starkly different the monetary regime now is.

On that note, that obviously also represents around $7tln of US government debt that will, in perpetuity, remain on the Fed’s balance sheet. Effectively, monetising that chunk of debt, and likely allaying some still-lingering concerns about the rate of government borrowing.

While equity vol will likely remain low, rates vol is likely to move higher, particularly in the early stages of the easing cycle, as front-end rates continue to adjust expectations as to when the first rate cut will be delivered.

In the grand scheme of things, however, when that cut is delivered – whether it comes in May, June (my base case), July, or later – matters relatively little. The broader direction of travel will be a move back towards neutral, likely through a 12-18 month long easing cycle from the summer onwards.

There is also, of course, the not-so-insignificant matter of the flexible Fed put that is now well and truly back. While consensus very much favours the Fed cutting rates, and ceasing QT, this year, both in relatively orderly fashion, the successful return of inflation towards the 2% target has provided policymakers with significant optionality and flexibility as to how they conduct policy going forward. If a financial accident were to occur, rates could be cut more rapidly, and to a lower level, while targeted liquidity injections into any potentially troubled sectors of the economy would also likely be on the cards.

Being safe in the knowledge that, once more, the Fed have investors back, market participants will likely be able to continue substantially increasing risk exposure, particularly once the first cut has actually been delivered.


Related articles

Subdued Vol Set To Stay?

Subdued Vol Set To Stay?

Volatility
Macro Trader: Swaps = Dots

Macro Trader: Swaps = Dots

Monetary Policy

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.

Other Sites

  • The Trade Off
  • Partners
  • Group
  • Careers

Ways to trade

  • Pricing
  • Trading accounts
  • Pro
  • Trading hours

Platforms

  • Trading Platforms
  • Trading tools

Markets and Symbols

  • Forex
  • Shares
  • ETFs
  • Indicies
  • Commodities
  • Currency indicies
  • CFD forwards

Analysis

  • Navigating Markets
  • The Daily Fix
  • Meet Our Analysts

Learn to trade

  • Trading guides
  • Videos
  • Webinars
Pepperstone logo
support@pepperstone.com
+448000465473+442038074724
70 Gracechurch St
London EC3V 0HR
United Kingdom
  • Legal documents
  • Privacy policy
  • Website terms and conditions
  • Cookie policy
  • Sitemap

© 2025 Pepperstone Limited 
Company Number 08965105 | Financial Conduct Authority Firm Registration Number 684312

Risk warning: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.7% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Trading derivatives is risky. It isn't suitable for everyone and, in the case of Professional clients, you could lose substantially more than your initial investment. You don't own or have rights in the underlying assets. Past performance is no indication of future performance and tax laws are subject to change. The information on this website is general in nature and doesn't take into account your or your client's personal objectives, financial circumstances, or needs. Please read our legal documents and ensure you fully understand the risks before you make any trading decisions. We encourage you to seek independent advice.

Pepperstone Limited is a limited company registered in England & Wales under Company Number 08965105 and is authorised and regulated by the Financial Conduct Authority (Registration Number 684312). Registered office: 70 Gracechurch Street, London EC3V 0HR, United Kingdom.

The information on this site is not intended for residents of Belgium or the United States, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.