Monetary policies risk historic global slowdown
With a major debate underway over the number of rate hikes needed to slow inflation, the PIIE says uncoordinated monetary policies risk a historic global slowdown.
Central banks almost everywhere feel accused of being on the back foot. The current danger, however, is not so much that current and planned measures fail to curb inflation. It is that they are collectively going too far and dragging the global economy into an unnecessarily sharp contraction. Just as central banks (especially those in wealthier countries) misread the factors driving inflation as it rose in 2021, they may also be underestimating the speed at which inflation could decline as their economies slow. And, as is often the case, by all moving simultaneously in the same direction, they risk reinforcing each other regardless of this feedback loop. The highly globalized nature of today’s global economy amplifies risk.
Uncoordinated or coordinated?
PIIE evokes a risk of “Uncoordinated“Monetary policies.
Since most central banks do the same thing, is the policy coordinated or not?
The question is moot because the point is understood. Most central banks are leaning in the same direction.
Synchronized political actions seem to be a better description of what is happening than coordinated or uncoordinated actions.
It’s not new. This has been going on for decades especially. Japan is an exception, forever trapped in its own alternate ZIRP universe. China is also currently out of the ordinary.
By the way, isn’t it time for writers to stop calling China an “emerging market”?
Either way, China is caught in a real estate bubble and is still trapped in export profiteering, so it doesn’t want to raise rates.
For more, please see China Not Rebalancing, Its Imperfect Dependence on Huge Exports Continues
Procyclical Synchronized Policy
Coordinated or not, central banks tend to lean in the same direction.
This tends to amplify things over time, such as global housing and stock market bubbles (and resulting crashes).
Not all economic wizards have seen the massive inflation of the biggest fiscal and monetary stimulus in history.
Now the risk is an overshoot in the opposite direction, which I’ve mentioned several times over the past few months.
The Fed will hike up to 4% in hell or flood
Scroll to continue
On Sept. 9, former Fed Vice Chairman Richard Clarida said the Fed will hike up to 4% in the event of hell or high water.
Q: Is the Fed data dependent or will it hit 4% in hell or flood?
- I think they would go 4% to hell or flood if I had to split it into two boxes.
- Inflation is way too high. Inflation was way too high last year.
- Until inflation drops, the Fed is truly a one-mandate central bank.
- They depend on the data, but the inflation data is too high. So I think they will reach at least 4%.
- I agree it’s not a great place. If it was just Putin, you’re right. But unfortunately, the economy is out of balance now.
Expect a long period of weak growth, whether or not it qualifies as a recession
On August 19, I commented Expect a long period of weak growth, whether or not it’s labeled a recession
On August 26, in Jackson Hole, Fed Chairman Jerome Powell pledges to “act decisively” to defeat inflation
Key Comments: “Reducing inflation will likely require a prolonged period of below-trend growth.”
Also note that the Fed openly encourages the fall of the stock market after Jackson Hole
Stocks are valued for perfection, not for a long period of weak growth, and with the Fed openly applauding their demise.
Fed chairs are all groupthink bureaucrats who have no idea what inflation is (rising or falling).
Inept fiscal policy is also at stake. For example, climate policy is a much bigger threat than climate change
Powell won’t want to risk being blamed for another round of global inflation. As Clarida pointed out, the Fed is really a one-mandate central bank.
Add it all up and the Fed is about to overshoot.
This post is from MishTalk.Com.
Thanks for listening!
Please subscribe to MishTalk email alerts.
Subscribers receive an email alert of each message as it occurs. Read the ones you like and you can unsubscribe at any time.
If you are subscribed and not receiving email alerts, please check your spam folder.
#Amplification #central #bank #interest #rate #policy #single #image