Inflation is getting away.
IMF voices concerns.
Fed President says it is not transitory after all.
We really have only to pin the latest US inflation chart to the top of our report from yesterday, to fully understand and confirm what is going on in the world.
In the past two days, the IMF has lowered its growth forecasts and issued a major warning on inflation, while at least one Fed President has stated the current wave of inflation is clearly not transitory. Fed minutes showed tapering is likely this year.
We always forecast tapering this year and hikes next year, even though the Fed didn't know it yet. Just today, Goldman Sachs said inflation is the biggest risk facing the economy and markets. We said it three months ago. Wall Street is very much behind the curve on this.
Some central banks are on the right page. Mexico, New Zealand, South Korea among several who have already begun raising rates. They are doing so, because they recognise that the current relatively low settings are no longer necessary. At the same time, it is highly problematic to have emergency stimulus levels of official rates when inflation has clearly turned a corner and is rising quickly.
While some would argue central banks are in a difficult position? That simply reflects an ability to see a new world where central banks need to behave more dynamically. Did I just say that? Suggest a dynamic central bank?
Well, let's move to the other end of spectrum where we have the entirely absurd and world first in central bank policy, of the Reserve Bank of Australia having declared on numerous occasions that it will emphatically not raise rates from the emergency 0.10% setting, until 2024?
Why does the financial media and economic debate in this country allow our central bank to be so extreme, as to enshrine stubbornness, and tie its own hands to an inability to respond appropriately.
A slow central bank that is badly behind the curve can do tremendous long term damage to the economic well being of a national economy and to the lives of its citizens. It is vitally important that Australia rediscovers open and when necessary critical debate of our central bank's performance. Just like every other country in the world has.
Whether rates should be raised or not, occurring in 2022, as it I believe they should, or in 2024, is really beside the point. Having a policy of declaring it will not change its policy setting for some 2-3 years, is completely at odds with good governance.
The ECB is shifting toward removing bond buying and starting to think rate hikes will be appropriate at some point. New Zealand has already hiked. The US Federal Reserve is beginning to admit it got the inflation story wrong. Just as we forecast they would be doing, several months ago. The pressure building on the RBA to abandon its ridiculous 'sit on its hands' policy is building.
We should expect the Federal Reserve Bank of the USA to begin to raise rates in the first half of 2022.
We should expect the Reserve Bank of Australia to exit its extreme, by all global standards, policy of doing nothing within weeks. If it takes any longer, then inflation will really become an entrenched problem.
The RBA needs to abandon its no change til 2024 policy immediately.
And begin to warm the market to the idea that it may well be raising rates in the first half of 2022. There simply is no argument for the level of official rate stimulus we currently have, for an even below trend growth path.
Which, by the way, remains my forecast for the Australian economy. Sluggish economic growth and high inflation.
Equity markets simply bounced around in the recent range during the US session. It has become a virtual mantra to expect some initial strength that will fade over a 24-48 hour time horizon.
If you missed yesterday's report, I strongly urge a quick look.
At 5.4%, increasingly looking more of the permanent and worrying kind.
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