Bank of America prepares for a rainy day
BUSINESS RECORD STAFF Oct 13, 2015 | 6:45 pm
1 min read time
241 wordsAll Latest News, Banking and FinanceBank of America Corp.’s shopping list for the next recession has these items: commodities, bonds that protect against inflation, real estate and the equities of small Chinese companies, Bloomberg reported.
The Charlotte, N.C.-based bank expects a “massive policy shift” next year if world economies contract and deflation fears expand.
Rather than relying on ultra-loose monetary policy again, another downturn would force authorities in the United States, Europe and Japan to deploy fiscal stimulus, according to a report this week by the team led by Michael Hartnett, Bank of America’s chief investment strategist.
China, on the other hand, would turn away from government spending toward quantitative easing.
If governments did cut taxes and boost spending, that should be enough to spark expectations of faster price pressures among investors, spurring demand for gold, inflation-protected Treasury bonds and property, according to Bank of America.
Commodities would also get a lift as officials invested in infrastructure, taking advantage of cheap raw materials and low borrowing costs. The strategists noted that the issuance of bonds by U.S. municipalities is currently running at the lowest level since 1997.
Policymakers would be switching direction because another recession would suggest that quantitative easing has failed to boost economic growth, according to Bank of America.
Seven years since the last worldwide recession, borrowing costs close to zero are still in place in 55 percent of the world economy, and more than half of all government bonds yield less than 1 percent.
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