United States (Treasury & Federal Reserve)
G20 finance ministers and central bank governors will meet this weekend in Shanghai for the next round of G20 meetings. US Treasury officials have indicated that they will call on G20 members to use all possible monetary and fiscal tools to boost global demand in an attempt to stimulate economies. Yes, it’s obnoxious and overbearing on the part of Treasury, but governments around the world generally look for excuses to spend more money. It’s more difficult for the less-developed countries in the G20, as their ability to finance spending through debt issuance isn’t as easy as the United States, so there will probably be some resentment there. But expect this weekend to be full of news of government officials stressing the need for more economic stimulation. As far as US monetary policy goes, more and more regional Federal Reserve Bank Presidents are expressing reluctance for more interest rate increases on the part of the Fed. Let’s take a look at where the 10 members of the FOMC stand.
Board of Governors
Chairman Yellen and Vice Chairman Fischer have been characteristically guarded in their recent comments, Yellen in her semiannual testimony to Congress, and Fischer in a speech delivered yesterday. Governors Jerome Powell and Daniel Tarullo have been quiet recently, although Powell is slated to speak at this Friday’s US Monetary Policy Forum. Governor Lael Brainard is in the dovish camp, supporting a policy of “watchful waiting”. She too is scheduled to speak at the US Monetary Policy Forum this Friday. So for the five members of the Board of Governors let’s chalk that up as two who could go both ways, two unknown, and one dove.
New York Fed President William Dudley believes that the economy is doing alright, but that conditions are tightening, which might weigh on the Fed. St. Louis Fed President James Bullard opposes further rate hikes. Kansas City’s Esther George thinks rate hikes should remain on the table, while Cleveland’s Loretta Mester believes that gradual rate hikes are likely. Boston Fed President Eric Rosengren is more cautious, hoping to see more inflation before rates are hiked again. Let’s count that as two hawks, two doves, and one who could go both ways.
Among the alternate FOMC members, Chicago Fed President Charles Evans remains worried about inflation being too low, Philadelphia Fed President Patrick Harker also wants to wait until inflation is higher before hiking rates again, Dallas Fed President Robert Kaplan wants to exercise caution, and new Minneapolis Fed
loudmouth President Neel Kashkari wants monetary policy to remain accommodative. New York Fed First Vice President Michael Strine would only vote if President Dudley is absent. So among voting members we have three doves, two hawks, two unknowns, and three who could go both ways, with at least four more doves cooing on the FOMC sidelines. With Powell and Brainard speaking on Friday we should get some clarification on their views, but a rate rise in March looks to be out of the question right now, and further easing can’t be ruled out.
Europe (European Central Bank)
ECB President Mario Draghi has telegraphed further monetary policy accommodation at the March ECB meeting, but there are fears that the ECB may actually run out of assets to purchase. The ECB doesn’t want to be seen as giving particular countries advantages over others, so it has set fairly strict limits on how much and what types of government bonds it can buy. There is speculation that the ECB may loosen the interest rate limits on bonds it purchases, or even open up its bond purchase program to corporate bonds. Whatever else it decides on doing, it seems that further monetary easing is a foregone conclusion. Draghi has been chided in the past by advocates of monetary easing for not doing enough, so maybe the March ECB meeting will see an outrageous expansion of ECB monetary efforts.
England (Bank of England)
Bank of England Governor Mark Carney has stated that the Bank of England has considerable room to pursue further monetary stimulus measures. These might include pushing rates to zero or expanding its bond purchasing program. With the UK set to vote on June 23rd on whether or not to exit the EU, there could be a fair bit of economic and monetary volatility both before and after the vote. Don’t be surprised to see Bank of England intervention either immediately before or for a long period of time after the vote.
Japan (Bank of Japan)
Bank of Japan Governor Haruhiko Kuroda is once again defending his negative interest rate policy and not ruling out the possibility of even further monetary easing. Like most other central bankers, the monetary easing that he thinks is medicine is actually poison. His monetary policy will only worsen the economic situation in Japan. Our bet is on further monetary easing and even lower negative interest rates in the future.
All in all, it’s a pretty sad situation around the world. Only a few short months ago it seemed like at least the US and UK might start trying to get back to normal. Granted, it might take a decade, but at least they were looking at taking the first baby steps. Now it appears as though the world’s central bankers are all jumping off the deep end at the same time. More stimulus is demanded, as though there weren’t already enough. Perhaps for Wall Street there isn’t, as they love to see the Fed make it rain, but for the rest of us we’ll be stimulated into poverty as our money becomes increasingly worthless. The absurdity of Keynesian monetary policy almost makes you want to hook up a central banker to an electro-shock device so they can experience firsthand the effects of ever-increasing stimulus. No amount of failure seems to get through to these people to make them understand the negative repercussions of their actions. That is why it is all the more important to continue opposing these horribly misguided policies.
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