Nearly all the world and certainly all the major economies in the developed countries are taking their interest rate trends flat to higher. While they are moving individually and each of them is focused on domestic economic data, they are still a group acting in concert; and that is the concern for markets. Central Bank policy-driven rising interest rates and concomitant increasing inflation expectations are a mixed headwind for markets. That has usually been the case throughout history. Is this time different?
We must consider that there is the highly unusual pandemic shock. It has dramatically impacted what would otherwise be cyclical indicators. All of us see the impacts daily in supply chain shocks and in shortages of workers, regardless of how high the wage escalation takes us. Pandemics have always created huge shocks; and shifts in economics and recessions followed every one of them throughout history.
So do the world’s central banks, acting in concert, pose a threat to the post-pandemic recovery? Are they overreacting to the oil/energy price rise, as they did in the 1970s? The answer is, maybe. We simply don’t know yet if these central banks are jumping the gun. Each of them may be seeing themselves idiosyncratically as on a correct policy path but, collectively, they may be doing real tightening on the globally nascent economic recovery from the worst pandemic in an 100 years.
We do know that they are moving their policies to reduce stimulus or to tighten outright. And we do know that those moves represent a major change in global central banking and are destined to alter the pricing of stock and bond markets around the world.
Here’s a link to an excellent summary of worldwide central bank status. Nearly every country of importance in the developed world and the emerging markets is included. Readers may want to spend a few minutes working through this detailed article.
“Central Bankers Are Spooked by Signs That Inflation Is Lingering for Longer,”
https://www.bloomberg.com/news/articles/2021-10-09/central-bankers-spooked-by-signs-inflation-lingering-for-longer
David R. Kotok
Chairman of the Board & Chief Investment Officer
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
