Pro Perspectives 8/25/23





Please add to your safe senders list or address book to ensure delivery.

August 25, 2023

The Kansas City Fed is hosting its annual economic symposium at Jackson Hole.
As we've discussed, this annual event is well attended by the world's most powerful central bankers and finance officials.  And historically it has served as a platform for central bankers to communicate important signals regarding policy adjustments.
Did we get one of these important signals today?
The Fed Chairman, Jerome Powell, spoke this morning.  He said a lot, but nothing new.  The Fed has rates in restrictive territory, currently putting "downward pressure on inflation."  And from here, they will watch the data, to see if they need to tighten further, or hold where they are.
It turns out the keynote speaker of the event wasn't a Fed official, but the head of the European Central Bank.  It was Christine Lagarde that addressed the symposium topic of this year, "Structural Shifts in the Global Economy."
So what did she say?
Let's start with her conclusion:  "There is no pre-existing playbook for the situation we are facing today – and so our task is to draw up a new one."
That's quite a statement.  She says that the (supply-oriented) changes in labor, energy and trade, are structural — and blames the pandemic.
With that, in the post-pandemic world, she says we should expect more shocks emanating from supply, which will result in more price shocks.
So, just as everyone has been hoping the central bankers would step away from manipulating the economy and markets, Lagarde says we need even more "robust policymaking in an age of shifts and breaks."
If we're paying attention, "robust policymaking" in this post-pandemic era, seems to translate into raising rates to the point of breaking things in the financial system, and then simultaneously intervening in markets to fix what they break (as the ECB did with its sovereign bond market, as the UK did with its sovereign bond market, and as the Fed did with its banking system).
As I've said many times here in my daily notes, we are in the era of no-rules central banking.  The world's central banks crossed the line in the sand (i.e. ripped up the rule books) at the depths of the Global Financial Crisis, and unsurprisingly, haven't turned back.  It is now standard operating procedure to fix and manipulate.
Related, rather than let markets determine the viability of the coordinated policy agenda of governments (namely, the climate agenda), the central banks continue to position to accomodate the agenda, muting the shocks, if not canceling the negative signals.