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Hubris in Frankfurt

The ECB has announced that it won’t tolerate unjustified changes in financing conditions. Neither the ECB, nor any other central bank, can know what unjustified changes are. The ECB’s behaviour opens the door for politicians to interfere in markets as well. Central banks in most western economies have for many…

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Twin threats to central bank independence

Central banks enjoy a reputation of, if not omniscient omnipotence, at least competence The current bout of inflation has shown that the omniscient omnipotence is absent It also risk showing a lack of competence, if they do too much – or too little Central banks have long enjoyed a high…

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Hampton Inn Charlotte Uptown, Charlotte NC, 2 May 2022

I am normally very partial to the American hotel breakfast. At the same time, I am aware of the fact that many hotels are scaling back in both scope and ambition. Nevertheless, this one was rather disappointing. Very limited choice, essentially cereal, disappointing bread (and bagels admittedly) as well as…

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What QT will do

The Fed will imminently begin to slim its balance sheets. Other central banks will follow Quantitative tightening may shrink money supply But the main impact is likely to be upward pressure on bond yields for a very long time The Federal Reserve will soon begin to seriously slim its balance sheet. It…

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As ye sow, so shall ye reap

Survey data show surging inflation expectations Central banks’ monetary ignorance meant they failed to manage inflation both below and above target This double failure adds to the threats to central bank independence Central banks spent much of 2020 believing that there would be no increase in inflation in spite of…

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Changing monetary dynamic poses problem for central banks

Broad money growth in the ‘inflation-hit west’ is slowing The implication is that inflation will ease, though probably not earlier than H2 Central banks face a new dilemma; they still need to tighten policy, but not by too much Over the turn of the year, broad money growth in the…

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Will the Chinese economy ever overtake the American?

China’s population may have peaked in 2021. This is worrying, since population and labour force growth are key inputs in GDP growth. Monetary data also point to weaker trend growth going forward. In mid-January, there was an interesting news item from China. The number of children born in 2021 was…

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The ongoing evolution of the ECB

The ECB has (naturally) changed substantially throughout its brief existence. But the current changes are more fundamental, affecting the core of the Bank’s behaviour. Once the question was how Italy would be able to live with a German currency. Now it looks the other way around, how will Germany live…

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Unhappy ECB

In theory, the ECB should find it easier than most central banks to fight inflation.  In fact, it is finding it more difficult, preferring to do nothing and rely on Mr Micawber’s dictum. This is partly because the ECB is in a process of transition, from ‘Teutonic’ to ‘Latin’. All…

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Negative real rates will not dampen inflation

Inflation continues to surprise central bankers on the upside Yet planned/expected interest rate moves will still leave real policy rates negative for years With broad money growth again accelerating, this means continued above-target inflation  Another month has passed, another month when inflation surprised on the upside in the major Western…

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