Pubblicato in: Banche Centrali, Stati Uniti, Unione Europea

Banche Centrali. I tassi in aumento generano depressione.

Giuseppe Sandro Mela.

2022-09-23.

Lagarde e Powel 001

«sacrifice ratio, jargon for the loss of output that will be needed to control inflation»

«coefficiente di sacrificio, in gergo la perdita di produzione che sarà necessaria per controllare l’inflazione»

«Credibility is everything for central banks, and it was dented by getting transitory inflation wrong»

«La credibilità è tutto per le banche centrali, ed è stata intaccata dall’aver sbagliato l’inflazione transitoria»

«We have all the makings of a global recession»

«Abbiamo tutte le carte in regola per una recessione globale»

* * * * * * *

«Stocks declined in a cautious start on Monday as investors await a slew of interest rate decisions in the days ahead and after global equities notched their worst week since hitting this year’s low in June. The Stoxx Europe 600 Index opened 0.5% lower, with the biggest losses in energy, banks and technology stocks. The index headed for its lowest close since July 5, wiping out most of its summer rally. Futures on the S&P 500 index also dropped, indicating extended declines for the benchmark after its worst weekly performance since June 17.» [Bloomberg]

* * * * * * *

La corsa globale al rialzo dei tassi inclina le economie verso la recessione. Dopo aver visto in ritardo l’arrivo della peggiore inflazione degli ultimi quarant’anni, e averla poi repressa con lentezza, la Federal Reserve e i suoi colleghi di tutto il mondo non fanno mistero della loro determinazione a vincere la lotta contro l’impennata dei prezzi, anche a costo di vedere le loro economie espandersi più lentamente o addirittura contrarsi. Circa 90 banche centrali hanno aumentato i tassi di interesse quest’anno, e la metà di esse ha aumentato di almeno 75 punti base in una sola volta. Molte lo hanno fatto più di una volta.

Il risultato è il più ampio inasprimento della politica monetaria da 15 anni a questa parte, un allontanamento decisivo dall’era del denaro a buon mercato inaugurata dalla crisi finanziaria del 2008, che molti economisti e investitori avevano visto come la nuova normalità.

Solo questa settimana, la Fed dovrebbe alzare il suo tasso di riferimento di 75 punti base per la terza volta, con alcuni che chiedono una salva di un intero punto percentuale dopo che l’inflazione statunitense ha nuovamente superato l’8% in agosto. Si prevede che la Banca d’Inghilterra aumenterà il suo parametro di riferimento di 50 punti base e si prevedono aumenti anche in Indonesia, Norvegia, Filippine, Svezia e Svizzera, tra gli altri. Il mese scorso il presidente della Ted Jerome Powell ha dichiarato che la sua campagna di contenimento dei prezzi comporterà un certo dolore per le famiglie e le imprese. Il membro del Comitato esecutivo della Banca Centrale Europea, Isabel Schnabel, parla di coefficiente di sacrificio, in gergo per indicare la perdita di produzione che sarà necessaria per controllare l’inflazione. La BOE si spinge a prevedere che la recessione del Regno Unito sarà in atto entro la fine di quest’anno e potrebbe protrarsi fino al 2024.

Dall’inizio del 2022, più di 40 banche centrali hanno aumentato i tassi di interesse di almeno tre quarti di punto in una volta sola. Powell ha trascorso gran parte del 2021 descrivendo lo shock inflazionistico come transitorio, e lui e i suoi colleghi hanno iniziato quest’anno prevedendo che i tassi di interesse avrebbero dovuto aumentare di soli 75 punti base nel 2022. La Fed ha già aumentato tre volte tanto. Nel frattempo, l’S&P 500 si sta avviando verso la più grande perdita annuale dal 2008. L’inflazione è trainata in parte dall’aumento dei costi dell’energia, sui quali le banche hanno poco o nessun controllo. Questo è il caso soprattutto dell’Europa, anche se non ha dissuaso la BCE o la BOE dall’aumentare i tassi.

* * * * * * *

«The global race to hike rates tilts economies toward recession. Late to see the worst inflation in four decades coming, and then slow to crack down on it, the Federal Reserve and its peers around the globe now make no secret about their determination to win the fight against soaring prices — even at the cost of seeing their economies expand more slowly or even shrink. About 90 central banks have raised interest rates this year, and half of them have hiked by at least 75 basis points in one shot. Many did so more than once»

«The result is the broadest tightening of monetary policy for 15 years — a decisive departure from the cheap-money era ushered in by the 2008 financial crisis, which many economists and investors had come to view as the new normal»

«This week alone, the Fed is set to lift its key rate by 75 basis points for a third time, with some calling for a full percentage point salvo after US inflation again topped 8% in August. The Bank of England is predicted to boost its benchmark by 50 basis points, and hikes are also expected in Indonesia, Norway, the Philippines, Sweden, and Switzerland, among others. Ted Chair Jerome Powell said last month that his campaign to rein in prices will bring some pain to households and businesses. European Central Bank Executive Board member Isabel Schnabel speaks of the sacrifice ratio, jargon for the loss of output that will be needed to control inflation. The BOE goes as far as to predict a UK recession will be under way by the end of this year and may stretch into 2024.»

«More than 40 central banks have increased interest rates by at least a three-quarter point in one go since the start of 2022. Powell spent much of 2021 describing the inflation shock as transitory, and he and colleagues entered this year predicting interest rates would need to rise by only 75 basis points in 2022. The Fed has already hiked three times that much. Meanwhile, the S&P 500 is heading for its biggest annual loss since 2008. Inflation is being driven in part by climbing energy costs over which they have little or no control. This is especially the case in Europe, though it hasn’t deterred the ECB or BOE from raising rates.»

* * * * * * *


The Global Race to Hike Rates Tilts Economies Toward Recession.

Central banks are intent on driving the world economy perilously close to a recession.

Late to see the worst inflation in four decades coming, and then slow to crack down on it, the Federal Reserve and its peers around the globe now make no secret about their determination to win the fight against soaring prices — even at the cost of seeing their economies expand more slowly or even shrink.

About 90 central banks have raised interest rates this year, and half of them have hiked by at least 75 basis points in one shot. Many did so more than once, in what Bank of America Corp. chief economist Ethan Harris labels “a competition to see who can hike faster.”

The result is the broadest tightening of monetary policy for 15 years — a decisive departure from the cheap-money era ushered in by the 2008 financial crisis, which many economists and investors had come to view as the new normal. The current quarter will see the biggest rate hikes by major central banks since 1980, according to JPMorgan Chase & Co., and it won’t stop there. 

                         ‘Bring Some Pain’

This week alone, the Fed is set to lift its key rate by 75 basis points for a third time, with some calling for a full percentage point salvo after US inflation again topped 8% in August. The Bank of England is predicted to boost its benchmark by 50 basis points, and hikes are also expected in Indonesia, Norway, the Philippines, Sweden, and Switzerland, among others.

As they slam on the brakes, policymakers are starting to lace their language with gloom in a public acknowledgement that the higher they raise rates to quell inflation, the bigger the risk they harm growth and employment.

Fed Chair Jerome Powell said last month that his campaign to rein in prices “will bring some pain to households and businesses.”

European Central Bank Executive Board member Isabel Schnabel speaks of the “sacrifice ratio,” jargon for the loss of output that will be needed to control inflation. The BOE goes as far as to predict a UK recession will be under way by the end of this year and may stretch into 2024.

There’s little doubt that the monetary medicine will hurt. The question is, how much? Analysts at BlackRock Inc. reckon that bringing inflation back to the Fed’s 2% goal would mean a deep recession and 3 million more unemployed, and hitting the ECB’s target would require an even bigger contraction.

Adding to the uncertainty is the lag before rate hikes affect the economy, in addition to the makeup of today’s inflation, much of which stems from energy and other supply shocks that central bankers can’t control. 

Investors won’t escape the fallout.

Last week’s higher-than-expected US inflation number for August sent the stock market into its steepest dive in more than two years, driven by bets on tighter Fed policy. Billionaire hedge fund manager Ray Dalio sees the prospect of a slump of more than 20% on equity markets as rates continue to rise.

                         ‘Credibility Is Everything’

Central bankers would rather keep their economies chugging along. They may at some point dial back their aggressive policy to try to ensure that. But their overriding focus now is to avoid repeating the mistake of the 1970s, when their predecessors prematurely loosened credit in response to slowing economies without first getting inflation under control.

That concern argues for pressing ahead forcefully with rate hikes, because allowing inflation to fester would risk greater economic pain in the longer term.

Anna Wong, chief US economist at Bloomberg Economics, estimates that the Fed will eventually have to take its benchmark rate to 5%, double today’s level — a dose of further tightening that could cost the economy 3.5 million jobs and deal further blows to already-battered markets.

Likely also pushing central bankers on is the idea that they’re already under attack for misjudging the pandemic-era price pressures, even if Russia’s subsequent invasion of Ukraine worked against them, too.

                         Jumbo Hike Club

More than 40 central banks have increased interest rates by at least a three-quarter point in one go since the start of 2022.

Powell spent much of 2021 describing the inflation shock as “transitory,” and he and colleagues entered this year predicting interest rates would need to rise by only 75 basis points in 2022. The Fed has already hiked three times that much.

Last November, ECB President Christine Lagarde said higher rates were unlikely in the euro area in 2022 only to find herself jacking them up 75 basis points this month and considering a repeat in October.

That action leaves policymakers with a lot at stake in winning the inflation battle.

“Credibility is everything for central banks, and it was dented by getting transitory inflation wrong,” says Rob Subbaraman, chief economist at Nomura Holdings Inc. “Regaining credibility is their top priority even if it means tightening into recession — that’s the lesson from the 1970s.”

                         ‘It Takes Time’

In a sign that investors expect a US recession, yields on short-term US Treasury securities have risen above their longer-term equivalents by the most this century, with some bond traders betting that the Fed will have to ease policy in the later stages of 2023. Meanwhile, the S&P 500 is heading for its biggest annual loss since 2008.

A BofA survey of fund managers this month found that global growth expectations were near all-time lows.

One reason for this worry is that monetary policy works with a lag. It weakens financial markets first, then the economy, and finally inflation. So repeated jumbo rate increases become hazardous.

“It takes time to cool off inflation,” says BofA’s Harris. “If you start talking about only focusing on current inflation as your main indicator, you’re going to be late in stopping” the tightening cycle. Harris sees the UK and euro area falling into recession in the fourth quarter as surging energy costs take their toll on economies this winter, and he expects a US downturn next year.

The US economy — and especially the jobs market — has so far proven surprisingly resilient. But economists say this simply means the Fed will have to push that much harder to cool off demand.

“Inflation and the labor market have proven more resistant to higher rates than the Fed anticipated,” says former Fed Vice Chair Donald Kohn. “So they need to get rates up more now.”

Until recently, it seemed like a no-brainer for the central banks to tighten policy. Inflation was sky-high, labor markets were strong, and interest rates were at rock-bottom levels.

But the trade-offs are getting tougher as high rates start to take a bite out of economies already suffering from the aftershocks of a lingering pandemic and Russia’s war in Ukraine.

Borrowing costs in many economies, including the US, are turning from stimulative to restrictive. A surging dollar is hurting indebted emerging markets. A steep cutback in Russian natural gas supplies is raising the risk of stagflation in Europe, as prices soar while recessions loom.

                         Not Now, Later

Policymakers do still express hope they can pull off the trick of slowing inflation without completely derailing growth, and that eventually they will curb the tightening — but not yet.

“You do need to think of the middle ground at some point,” Cleveland Fed President Loretta Mester told an MNI webcast this month. “But that’s not a consideration at this point. That’s a consideration for the future.”

The single-minded focus on getting inflation down increases the chances that the Fed and other central banks will overdo it and crash their economies.

Dartmouth College professor David Blanchflower, a former BOE policymaker, accuses US central bankers of “groupthink” and charges that they’re on a path to hammer a weakening economy to combat inflation that’s already dissipating.

Complicating the central bankers’ calculations: Inflation is being driven in part by climbing energy costs over which they have little or no control. This is especially the case in Europe, though it hasn’t deterred the ECB or BOE from raising rates.

Central banks all over the world are pushing in the same direction, and that heightens the danger, says Maurice Obstfeld, a former chief economist at the International Monetary Fund.

“They risk reinforcing each other’s policy impacts,” says Obstfeld, who’s now a senior fellow at the Peterson Institute for International Economics. They’re also effectively engaging in competitive appreciation of their currencies and, in the process, exporting inflation abroad, he says.

                         All Fall Down

Currencies almost everywhere have plunged this year against the dollar.

Since 1980 the world economy has posted an average growth rate of 3.4%. Right now, with monetary tightening adding to the drags from Covid-19 and Russia’s war, Obstfeld sees a risk that it could slow to “somewhere around 1%.”

Put differently, former Fed Governor Kevin Warsh, now a visiting fellow at the Hoover Institution, says, “We have all the makings of a global recession.”

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