The New ‘Now’ Zeitgeist

The New ‘Now’ Zeitgeist

Policy pivot euphoria waned Wednesday, as investors and traders weighed persistent inflation and tough-talking central banks against decelerating growth. One generic market recap said "a growing cohort of money managers is cautioning that expectations for a so-called Fed pivot are overdone and risk ignoring the economic pain that would underpin such a dovish tilt should policymakers opt for it." The same wrap alluded to hawkish rhetoric from Fed officials. At the risk of coming across as undul
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6 thoughts on “The New ‘Now’ Zeitgeist

  1. I found this nugget reassuring.

    “The BOE bought very little over the first three days of the program (Sep 28, 29, and 30), averaging only £1.21 billion per day, instead of £5 billion per day, according the BOE’s daily disclosures of gilt purchases under this program. It bought almost nothing on Monday (Oct 3), just £22 million with an M; and it bought £0 – meaning exactly “zero” – today (Oct 4)”

  2. CBs will step in if they break something, but will that step be to end rate hikes and QT? BOE didn’t end rate hikes and may have only briefly delayed QT to do a very small amount of QE. Maybe that is just applying bandaids while continuing to beat the victim, but CBs are under considerable pressure to continue the beatings and they have just started to use their supply of bandaids.

    1. JYL – now that global economies are showing signs of weakness, how strong will that “considerable pressure” remain in play?

      This headline from the UK may be giving us an early glimpse of the future in terms of questioning the mandates underpinning central bank authority: “British Prime Minister Liz Truss backed the Bank of England’s authority to set interest rates independently, dropping previous mentions of a review into the central bank’s policy-making.”

      If the CBs continue to stubbornly hike rates, the era of absolute power in the hands of unaccountable faceless ivory tower bureaucrats may be coming to an end. Especially with populism on the rise across the globe.

      1. There is, certainly, a level of economic weakness that will force CBs to stop tightening. We are not even close to there in the US, where the Fed is willing to accept (trying to achieve) employment, wage growth, asset prices, demand, etc meaningfully lower than current. Mere “signs of” weakness are not enough.

        The Fed spent months getting this message across, after Jackson Hole everyone professed to understand it. Now we think the US economy has deteriorated so much in a month that the Fed is going to volte-face and abandon an inflation both existential and barely starting to show progress?

        Maybe BOE is in a pickle, maybe Truss has to fall on her sword, how that farcical imbroglio works out I don’t know. I don’t think the Federal Reserve is inclined to let itself be wagged by someone else’s tail.

        I realize many commentators think Fed should stop tightening. I think the more relevant question is what does the Fed think.

        If the thesis is Powell is thinking “I better give in to 8% CPI, eat all the words I’ve said all year, go into history as the weakest Chair ever, because [reason]” then to identify that reason, and to bailout PM Truss or because Wall Street wrote fearful notes is not enough.

        1. All rational points, though an orthodox lens. But the authority of central banks around the world are not immutable. Political pressure to reign them in will grow the longer they drive their economies over a cliff in order to defend their reputations and historical legacies. It may end up that their legacies will end up being that they triggered the demise of central bank independence.

          That said, they probably can skate by until an even more populist wave sweeps the world. So you may well be right, in the short term.

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