The Federal Reserve and the European Central Bank decided this week to hold off on any big new initiatives to stimulate markets and the sluggish economies of the U.S. and Europe, The New York Times Dealbook reported yesterday. The lack of action may have a direct and painful impact on the chief source of revenue at investment banks on both sides of the Atlantic. Since 2009, the Fed has carried out two additional, but lesser, monetary initiatives. The next time central bank stimulus appeared to have a strong impact on trading profits was in the first quarter of this year. To help European banks fund themselves, the European Central Bank provided cheap, emergency credit to the continent’s lenders, first in December 2011 and then in February of this year. Investor sentiment rebounded, bonds rallied, and, on cue, fixed-income traders were soon racking up big profits. The central banks may yet act with force this year. Both the Fed and the European Central Bank made it clear this week that more forceful initiatives could happen later if economic and market stresses worsen. Many on Wall Street will be hanging on those assurances.
