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Macro Prospects - Edition 3rd quarter 2011
Sisyphus cannot simply kick the can down the road
In an unchartered economic environment, market expectations cannot be very stable. This is especially the case when a structurally weak recovery among the developed countries faces a series of temporary shocks, whose magnitude and length are not precisely known. Policymakers are not really able to send positive messages about managing this 'soft patch' properly. Indeed, room for manoeuvre in implementing new monetary and fiscal stimulus measures is limited. The focus could be more widely used on structural policies. Increasing market dynamism (whether of goods, services, labour or capital) often implies less regulation. In this case, the flip side is more instability. Is this acceptable just a few years after a crisis, one of whose origins is a default in regulation?
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Content:
Special 1: What policy management for the soft patch? Special 2: Europe must be better explained to markets Central banks: One for all, and every man for himself US Interest Rates: Super-sensitivity of rates Eurozone Interest Rates: Bund yields too low after 'perfect storm' Exchange Rates: EUR overly strong US: Pick-up in second-half growth Japan: Divided into two halves Eurozone: Abnormal normalisation France: Distinguishing the wood from the trees Germany: Shifts into overdrive - UK: Under pressure - ... - Emerging markets: Pausing for breath - ... - Economic forecasts |
Extract - Central banks: One for all, and every man for himself
Central banks closed ranks in adversity to stave off the threat of deflation. Faced with the opposite risk, inflation, cracks have emerged in that unity, with considerable differences in the type of response. Each central bank cites its own reasons, but it is hard to believe that they can all be right simultaneously.
In a financial environment cruelly lacking in visibility, these differing analyses only add to the confusion and fuel further volatility. They also create distorting effects in a world of excessive global liquidity, which will shortly, and in some cases abundantly, pile into those places where profit (or the prospects of profit) attract it, either geographically or by market segment, at the risk of fuelling new bubbles and/or financial instability. |
Central bank synchronicity: an exception rather than the rule |
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On Thursday 7 April 2011, the ECB announced a first increase in its key rate at a time when the Fed was still in monetary easing mode, with a firm programme of asset purchases in place until June, and while the BoE also remained in accommodative mode, maintaining the status quo on all fronts, conventional or otherwise. Yet the inflation fears that triggered the ECB's move are, along with surging commodity prices, a global phenomenon, which should logically have led to a more homogeneous response on the part of these same central bankers who were able to close ranks to ward off the opposite threat of deflation. |
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