Benjamin Cole | The last filmy slips of fabric have been stripped away, and macroeconomists must now view the once-romanced US Congress in flagrante delicto with a real paramour: Mr. Big Bucks Deficits. From here, a premise of Federal Reserve monetary policy must be that it takes place alongside $1 trillion annual deficits.
Jerome Powell is bound to have a crash landing in the Federal Reserve. From the very beginning of his mandate, pressure is mounting on him to raise rates. An unpalatable choice for someone who hoped to follow Janet Yellen’s wait-and-see stance for as long as he could.
After nearly a decade of easy money, the financial markets and the economy have not just become addicted to debt, but also indifferent to the continued growth in global debt.
The trend in inflation is confusing those in charge of monetary policy. After a significant uptick in the last part of 2017, it has really stagnated, in stark contrast with the growing dynamism of the economy.
How do I see the year 2018? Low growth and productivity, a declining working population, and an unsustainable rise in animal spirits. Everything comes to an end, and the longer it takes, the worse it is.
There’s an idea circulating amongst the central banks or, more accurately, amongst pressure groups in the central banks. The crux of this idea is: “the central banks should normalise interest rates”.
Both the Fed and the ECB remained gradual and predictable in their last week meetings as far as monetary policy is concerned. In opinion of Julius Baer, this prevented EUR/USD from taking a specific direction, “but monetary policy in the US and the eurozone are still diverging and justify a slightly stronger US dollar in the next month.”
Mohamed El-Erian, currently chief economist with German insurance group Allianz, and touted as a possible sucessor to Stanley Fischer, believes that monetary policy cannot do any more. And that the governments of the democratic countries have not been capable of coordinating economic policies which solve the problems created by the last crisis.
Could the yuan substitute the dollar and become the predominant currency? I would ask the following question: if you had some dollars, would you change them for yuan? No you wouldn’t, would you? We would like to demonstrate that the yuan is in no way a substitute for the dollar.
US President Donald Trump eventually nominated Federal Reserve Governor Jerome Powell as next chairman of the Federal Reserve. Governor Powell has never dissented from the policy actions of the FOMC during his five years as a voting member. However, it remains to be seen how he will make his own mark on the US central bank.