I saw a preview of this week’s Federal Reserve and European Central Bank monetary policy meetings.
In the intro to the note Scoita says:
- For some time now there has been a contest of wills between financial markets and key central banks. In one ring, it has been markets versus Lagarde. In another, it has been Powell versus markets.
- There is market skepticism toward the resolve of central bankers to keep on tightening monetary policy by enough to deliver the knock-out blow to inflation. This has been illustrated by market pricing that has undercut policy guidance.
- With their credibility continuing to be on the line, key is the need for central bankers to not so easily be swayed by mixed and tentative evidence of damage being done to parts of the economy when such is the intent of tighter monetary policy that is oriented toward bringing supply and demand conditions back into realignment. Letting up too soon risks going back in the ring later on.
And, I couldn’t help but think of the Reserve Bank of Australia coming up on February 7.
The latest data we had today was dreadful:
Apart from COVID-times and the introduction of a VAT tax to Australia, this is worst result ever.
I will note this though from Twitter, @AvidCommentator:
In addition to the retail sales data credit growth continued to slow:
So, some troubling data for the Australian economy. The Reserve Bank of Australia is going to have to consider this, but I’d humbly suggest that what Scotia says about the ECB and Fed apply to the RBA. Credibility is on the line. Australian monthly CPI came in above 8% in December. Quarterly inflation wasn’t much lower. From the RBA website:
The RBA target band for CPI is 2 to 3%. Circa 8% CPI is not consistent with a cash rate at 3.1%. A 25bp rate hike on February 7 is the least the Reserve Bank of Australia can do. And will.
–
Earlier: