Investors Are Getting the Message from Central Banks: No New Liquidity Boost

Are the world's major central banks, as Reuters says, already stretching the limits of monetary policy, while pressure has risen for them not go any further or even to begin pulling back? According to Reuters, top officials have had to rely increasingly on speeches - not always successfully - to convey to financial markets how they intend to manage their economies.

The release of minutes from the Fed's March meeting painted a much more hawkish picture, with a dwindling number of voting members on the Federal Open Market Committee - just two of 10 - actively considering more stimulus. The Fed tone prompted economists and Fed watchers to curtail their expectations for QE3, and for some to claim "the end of the excess liquidity market". The European Central Bank's injection of more than 1 trillion euros in loans to banks seems to be as much additional support the region's recession-threatened economy can hope for. ECB President Mario Draghi is now fighting off a Bundesbank push to begin preparing to reverse course, which would not be taken as a positive by the financial markets.

As long as their economies are in a recovery mode, policymakers may have to rely on providing verbal guidance to markets rather than more "extraordinary" measures such as bond purchases, loans to banks to boost liquidity, or effective monetization. But investors are already getting the message, i.e., pulling back from bullish bets, as investors are not so sure that growth is yet sustainable, particularly enough to drive commodity prices. Basically, all risk assets have risen mainly on the excess liquidity push, and could very well decline when they are deprived of this safety net of abundant liquidity while economies are still anemic. 

 In fact the big pop from money expansion has already passed in the U.S., with the YoY growth in the monetary base already double dipping from the massive increase at the height of the 2008 global financial crisis. 

Reuters: Short on tools, central banks left with words
Bloomberg: hedge funds cut wagers as fed signals less stimulus