MacNicol’s Monthly Commentary- August 2019

French novelist and journalist Jean-Baptise Alphonse Karr was famous for coining the phrase “the more things change, the more they remain the same”. We reproduce Karr’s famous quote in his native French to begin this edition of The Monthly and we think it is pretty fitting given the state of central banking policy. If there is one thing that many of the world’s major central bankers struggle with, it is the tension between the picture they want to paint of the economy through their own independent, self-guided tours of financial markets, and, the picture that politicians would like them to accept in order to assist in helping them achieve what are ultimately political goals.

What made the recent interest rate announcement by US Fed Chair Jerome Powell so tense was not the announcement itself: it was widely expected that Powell and company would lower interest rates, but post rate cut media scrum that followed. By most accounts, Powell’s time with the press was an unmitigated disaster. By lowering rates last week, Powell signalled to financial markets that some form of accommodation in the US monetary system was necessary to keep the economy growing or otherwise protect it from some real or perceived threat. Yet by not following through at the interest rate announcement with a “we will do whatever it takes” message about future changes in monetary policy, Powell confused many and disappointed others. I was confused by two things: first that an interest rate cut could follow an interest rate hike in such a short period of time and second that the US dollar actually moved higher during Powell’s meeting with reporters. How is that even possible I thought to myself. Were investors expecting the announcement of a full-blown easing cycle rather than (just) a “mid-cycle adjustment”.


 

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