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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (135747)	10/3/2017 7:14:44 PM
From: TobagoJack	Read Replies (2) \| Respond to of 217551

in catalonia we may be watching a footnote of martin armstrong playing out and tracking well in madrid we could be bothered by a regime reverting to true form, either or both ways ... euro disintegrates => etc etc, and unclear as yet what we are looking at in vegas, but around the world we may be watching the japan protocol continuing ft.com Don’t rule out a world of perpetual quantitative easing Central bankers find themselves in a quandary that is also inescapably political an hour ago Judgments about where the Fed goes from here are complicated by Janet Yellen’s potential departure in February © BloombergThe difference in perception between policymakers at the Federal Reserve and the markets could not be more marked. Fed officials are predicting that rates will have to rise before the end of the year and that there will be three more rate rises next year, while markets are pricing in merely a single rate rise between now and the end of 2018. Who, you might well ask, is right? In global markets a great deal hangs on that question. It has to be said that the Fed has been true to its word on rate rises this year, unlike in 2015 and 2016 when hawkish rhetoric was not followed by commensurate action. And in her recent comments Fed chair Janet Yellen has emphasised the dangers of moving too gradually despite inflation running at below the Federal Open Market Committee’s 2 per cent target. She also appears confident that the markets will have no difficulty absorbing $10bn a month of Treasuries and agency securities as the Fed slims down its bloated $4.5tn balance sheet, starting this month. That is bold, given the unprecedented nature of the exercise and the fact that the market adjustment will not be confined to the Fed’s portfolio. Over the period of quantitative easing fund managers across the world tailored their portfolios to take account of official purchases. They will now reallocate assets away from economies that had large QE-buying programmes. At the very least the perception gap tells us that the scope for market upsets is considerable, especially when corporate debt levels are hitting new highs in the US. Yet judgments about where the Fed goes from here are complicated by Ms Yellen’s potential departure in February and the gaps that already exist on the Fed’s board. It is, after all, within President Trump’s gift over time to turn the central bank into a dovecote. The reality of independent monetary policy is that independence is always qualified. The other complicating factor for policy is the extraordinary mildness of the inflationary pressures at work in the advanced economies and the docility of labour in the face of stagnant or falling real incomes. The explanations for these so-called wage puzzles are many and various. But as the Bank of England’s Mark Carney argued in his recent IMF Michel Camdessus Central Banking Lecture, globalisation appears to have weakened the relationship between domestic slack and domestic inflation. The introduction of more and more emerging market workers into the global labour market has clearly exerted a restraining influence on workforces in the tradeable sector of advanced economies. The relationship between slack and inflation nonetheless appears to hold at global level. So with the world economy enjoying a synchronised upturn the global output gap will be shrinking. Yet there remains a question as to how many more emerging market workers are set to migrate from the land into urban areas. It turns significantly on China, where opinions differ on how much further migration has to go. If the central bank hawks are right that the world is about to become a more inflationary place, interesting issues arise in relation to the politics of removing the punch bowl when the party is hotting up. It took heroism on the part of Paul Volcker to turn the inflationary tide during his tenure at the Fed from 1979 to 1987. But independent central banking could not have enjoyed a more benign operating environment than in the period of disinflationary globalisation that followed. Today the background is less helpful. Central bank credibility has been badly damaged by the great financial crisis. The distributional implications of the central bankers’ response to the crisis through their asset purchasing programmes has lent strength to populist politicians who observe that unconventional central banking has delivered big capital gains to the asset-rich elite, while doing less for ordinary people. At the same time the build-up of debt means that borrowers are hostage to potential interest rate spikes as policy normalises. The risk is that central bankers will find themselves torn between the politically unpopular and financially destabilising rate rises that might be required to curb inflation and the more quiescent approach that would be needed if they are to preserve what independence they have. The second outcome would, in effect, usher in an unbrave new world of perpetual quantitative easing.