top of page
  • Writer's pictureEdward Ballsdon

A Disinflationary Environment

The famous Keynes quote of “When the facts change, I change my mind” is actually followed by “ - what do you do, sir?”.  This report demonstrates that inflation data and information that drives inflation, predominantly credit growth, has declined and in some case surprised to the downside. So far only the Fed changed its mind and pivoted whilst other Central Banks try and defend their tight policies to bring inflation down, ignoring all the signs that it is already declining towards their targets. By keeping rates at very restrictive levels, which can be confirmed by the rarely seen fast deceleration of credit growth, this report argues that Central Banks risk overshooting a soft landing into something more serious.

The decision making balance on Monetary Policy is very delicate and sensitive due to the significant amounts of concentrated debt. Investors have reacted by locking in long term fixed rates to prevent the reinvestment risks associated with persistently low rates. This is a demonstration that there is fear that Central banks’ poor ability in understanding the drivers of inflation will mean rates will remain too high for too long, dashing the hopes of a soft landing.

But what can they really do? Having misjudged inflation on the upside and with inflation still far above target, can Central Banks really take the next step from a pivot and actually cut rates (let alone stop contracting their balance sheets)? This is the irony of the whole situation – Central Banks are stuck in a place whereby if they keep rates high in their attempt to regain their tarnished reputations, the more likely they will cause an economic problem, causing rates to then remain low for a long period of time.  

13 views0 comments

Recent Posts

See All

Are Central banks causing inflation....?

Research Content Following the deep dive into US PCE inflation, as well as into the Canadian and Australian economies, it is clear that tighter monetary policy is linked to housing rental inflation. T

Rear view driving is dangerous.

Research Content Following the NFP, which delivered another outsized move in bond yields, this note examines some issues that are impacting markets and others in the background that are likely to have

BoJ still in a Straitjacket

RESEARCH CONTENT This report discusses the market speculation about when the BoJ would tighten policy and take rates positive. It notes that there has not been much volatility in JGBs or $Yen – they h

bottom of page