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Goldman Says New Plaza Accord ‘Unlikely.’ For Now
If you ask Goldman, a so-called "Plaza Accord 2.0" isn't especially likely to come together.
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The problem is now rates are at a restrictive level. The FOMC may not think so, but the market is saying otherwise (yield curve, credit spreads, shipping prices, commodity prices, real estate prices, external value of the trade weighted $ you get the idea). So many are waiting for a pivot to reflect this reality. Japan and BOE and other central banks are being dragged along with bad choices to protect their currencies and deal with inflation. I am not saying the Fed was wrong to tighten policy- it is the speed and degree that are worrisome. The Fed has a few legs to stand on- employment is strong although that is a coincident/lagging indicator and consumer inflation as measured is still too high- although there is a measurement problem related to owners equivalent rent but to be fair service inflation is high without the rent. The final problem is that supply shocks are not susceptible to monetary policy fixes except for the very blunt instrument of killing consumption. Even if the FOMC did everything perfectly according to monetary policy hindsight we would still be looking at probably 6% CPI. All you have to do is to look around the world- even the early movers have excess inflation-wars and pandemics do those kinds of things. The next shoe to drop is going to be a pretty large disinflation- it will become evident very soon.
“The next shoe to drop is going to be a pretty large disinflation”, which is exactly what the Fed wants!!! “Deflation is a decrease in general price levels, while disinflation is what happens when price inflation slows down temporarily.” Why would you object to disinflation?
I, for one, I’m rooting for deflation — in food costs, housing costs, healthcare costs, education costs, and auto prices, for starters. All are too high and need to come down — not just slow their rate of increase.