As I have written many, many times, the ‘unexpected’ events of January and February were a dramatic wake-up call for central banks. Last August’s global liquidation they could at least try to ignore because it could possibly fit within the paradigm of ‘transitory’, a one-off aberration that was some mysterious Chinese viral contagion and thus of not any great, lingering importance. The recurrence in the first part of 2016, though, destroyed those assertions and a lot of people noticed; and you can bet the Fed noticed that a lot of people noticed.
What is happening this year is astounding. After saying year after year after year that the recovery is coming, and even doing so to the point of condescension, the admissions of wrongfulness are starting to roll in, if only softly at first. How ludicrous does ‘transitory’ look now? Though that word remains attached to official policy statements, official policymakers themselves have begun to act otherwise.
There was the brief flirtation with NIRP even in the United States, though fortunately disabused by clear Japanese example of the utter harm such monetary ‘stimulus’ actually offers. Of late, economists are railing about raising the inflation target, but they have yet to offer an explanation as to why that might be needed (even before they try to argue why it might work in a way the current one doesn’t). To get to the future of new policy regimes that are hopefully (to them) more successful, central bankers have to deal with the past of policies that so clearly weren’t.
Even Jon Hilsenrath of the Wall Street Journal has been captured by the mood, certainly affected by the discussions to be taking place among central bankers gathered at Jackson Hole. The Kansas City Fed symposium might be better titled this year as ‘How do we get ourselves out of this mess we created?’
This post was published at David Stockmans Contra Corner on August 25, 2016.
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