Central bankers deserve praise for salvaging the economy when it was navegating rough waters. The massive liquidity glut they provided undoubtedly saved the day. Yet this funding bonanza seems unable to boost growth. We know that money doesn’t necessarily bring happiness. But now we discover, much to our dismay, that neither does it guarantee a full- steam recovery.
Articles by JP Marin Arrese
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Investors do not expect the Fed to move on rates at today’s’ meeting. There is only a slim 20% support for this view, as hopes for a strong recovery were dashed by recent disappointing data. The widely expected hike may have to wait until the Presidential Elections are over.
The recent G 20 Summit saw widespread concern over the backlash against free trade. The crude populism gaining momentum in many developed countries has raised the banner against globalisation, depicted as the main culprit for all woes. Those losing their jobs or facing tougher labour conditions openly blame imports and open market access for their misfortune.
The Spanish right and centre parties have brokered an agreement for breaking the current political deadlock. The caretaker Cabinet has held office for nine agonizing months as two general elections failed to produce an outright winner. Even if the settlement reached between the caretaker Popular Party government and Ciudadanos marks a sizeable step forward, it will still fail to deliver enough parliamentary support for securing a stable government. The Socialist Party continue to firmly hold the key to power.
At Jackson Hole, Janet Yellen dwelt extensively on the challenges raised by low neutral rates, recognizing the need to broaden the unconventional toolkit for compensating for the subdued impact rate cuts might have in future. By hinting the Fed should reinforce its weaponry, just in case there is an unexpected and most unlikely bout of recession, Janet Yellen is sending the wrong message.
In the good old days, financial and economic observers used to worship Alan Greenspan’s deliveries as if they were Moses’ Tables of the Law. Many even earned their living interpreting his messages. This has no longer been the case since the first moment Janet Yellen took office. Most acknowledge that reading the Fed minutes is tantamount to a sheer waste of time. What we want to know, and the sooner the better, is the degree of commitment the Fed will demonstrate in hiking rates and reducing the liquidity glut.
On the eve of the Jackson Hole Fed gathering, the San Francisco Reserve Bank Chairman, John Williams, has launched an enlightening debate on the challenge raised by protracted natural interest rates. The so-called r-star would rank now close to zero in the US and below that threshold in the Eurozone.
The outstanding labour market performance in the US has triggered widespread speculation of a Fed rate hike as early as September. Nonetheless, most new jobs are part-time, while the hourly wage increase lags well behind its pre-crisis pace.
As the Brexit initial turmoil little by little abates, the ECB has no immediate reason for acting. Its room for manoeuvre already seems extremely tight. Running negative rates allows a most limited scope for driving down the money price. The Euro slide provides on its own enough impetus to the economy. The case for further loosening lacks of enough ground. The wait-and-see stance by the Federal Reserve suffices to shore up the ailing pound.
The ‘leave’ campaigners have shown their inability to run the Brexit. They felt unspirited to undertake the awesome task of taking Britain out of the European Union, let alone lead the country in these difficult circumstances. One after another they either refused to challenge premiership or were brushed away by poor support among Conservative MPs. It stands as no surprise Ms May has snatched an easy victory.