The real trouble with this world of ours in not that it is an unreasonable world, nor even that it is a reasonable one.
The recent narrative holds that the economy has been in an extended “soft patch”. In general, economic data have somewhat missed expectations.
Mario Draghi leapfrogged (helicopter) Bernanke, turning to open-ended QE and other extreme measures to preserve euro monetary integration. No longer would QE be viewed as a temporary crisis management tool.
A journalist’s question during Mario Draghi’s ECB post-meeting press conference: “…There was a sharp reaction from financial markets to your Sintra speech. You must have looked at the Fed experience of 2013. Is there any concern in the Governing Council that the so-called tantrum or a similar reaction can happen in the eurozone when you start discussing changes in your stance?
;Janet Yellen acknowledged… that the US’s persistently subdued inflation could raise questions about the Federal Reserve’s current path of gradually raising interest rates and vowed to watch prices ‘very closely’ for signs they were stagnating.
“Generally speaking (depending on the country), it is appropriate for central banks to lessen the aggressiveness of their unconventional policies because these policies have successfully brought about beautiful deleveragings.- Ray Dalio, July 6, 2017
The past week provided important support for the “peak monetary stimulus” thesis. There is mounting evidence that global central bankers are monitoring inflating asset prices with heightened concern. The intense focus on CPI is beginning to blur. They would prefer to be on a cautious path toward policy normalization.
June 18 – Financial Times (Mohamed El-Erian): “In hiking rates and, more notably, reaffirming its forward policy guidance and setting out plans for the phased contraction of its balance sheet, the Federal Reserve signalled last week that it has become less data dependent and more emboldened to normalise monetary policy. Yet, judging from asset prices, markets are failing to internalise sufficiently the shift in the policy regime.
It’s been going on nine years since the “worst financial crisis since the Great Depression.”
It was a week that saw Mario Draghi cling stubbornly to ultra-dovish monetary policy, the UK’s Brexit strategy thrown into even greater disarray after Prime Minister May’s failed election gambit, and the former Director of the FBI essentially testify that our President is a scoundrel.