In un altro Post pubblicato in data odierna, vi abbiamo messo a disposizione il pensiero di John H. Cochrane a proposito dei dati pubblicati negli Stati Uniti 48 ore fa, dati che per ragioni che dovrebbero apparirvi evidenti segnano per tutti gli investitori e per tutti i mercati finanziari un “punto di svolta generazionale”.

La lettura delle riflessioni di Cochrane ha forse incuriosito il lettore del Blog, e a questa curiosità noi rispondiamo segnalando al nostro lettore altri dati di grande importanza che sono stati messi in evidenza proprio da Cochrane.

Abbiamo commentato in un altro Post di oggi la scarsa reazione dei mercati finanziari maggiori ai dati per l’inflazione, che forse ha sorpreso qualcuno (ma non noi): in questo Post vogliamo però precisare che a fronte di una paralisi da paura che si è registrata sui mercati maggiori, in altri comparti si sono visti movimenti significativi. Ad esempio, nei comparti di cui ci racconta qui sopra il grafico.

Ci riferiamo al mercato delle opzioni: dal mercato delle opzioni, e dai prezzi che si registrano sul mercato delle opzioni, è possibile ricavare quello che pensano gli operatori che operano in opzioni del futuro tasso di inflazione.

Il primo dei due grafici qui sopra è molto efficace e vi racconta come sono cambiate le previsioni per l’inflazione: vedete tutta la distribuzione delle varie opinioni, con una previsione “centrale” che tra marzo e giugno è salita dallo 1% circa al 3% circa.

Nel secondo grafico sopra, potete vedere come è cambiata la probabilità che viene attribuita dagli operatori ad una inflazione inferiore allo 1% ed ad una inflaizone superiore al 3%, negli ultimi due anni.

Come già detto in un Post precedente di oggi, per noi investitori e per i mercati finanziari non ha importanza tanto la reazione immediata, quanto il fatto che da oggi tutti saranno costretti a ragionare, ad affrontare i problemi e anche ad investire in un modo diverso dal passato.

Detto delle previsioni e delle aspettative, ora facciamo un passo indietro ed andiamo a vedere, sempre aiutandoci con il lavoro di John Cochrane, che cosa c’è oggi nei dati per l’inflazione.

Oggi non ci dilungheremo su questo tema, che è oggetto di un Longform’d inviato ai Clienti in esclusiva. Ma con l’immagine sotto noi vi regaliamo alcune considerazioni sulle diverse componenti dell’inflazione, ad oggi. Questo ragionamento fatto sui dati del recente passato può esservi molto utile per comprendere se ha senso parlare di “inflazione transitoria”.

Nella parte conclusiva dell’immagine si accenna all’impatto dell’inflazione sul potere di acquisto dei salari: un dato essenziale, per capire sia se l’inflazione è temporanea, sia se l’inflazione avrà un peso, in futuro, anche sulle decisioni di spesa delle famiglie, e da qui sugli utili delle Società quotate.

In altri Post pubblicati oggi, abbiamo scritto di un “cambiamento di scenario generazionale”, sia per le economie reali, sia per i mercati finanziari.

Quando si verifica un evento storico di questa portata (altro che “il vaccino” …) non deve cambiare soltanto la composizione e la gestione del proprio portafoglio di investimenti. Deve cambiare prima, e soprattutto, il modo stesso nel quale ragioniamo di investimenti e di mercati finanziari.

Scenari che in passato potevamo ignorare, e del tutto escludere dalla nostra elaborazione delle stime per i rendimenti futuri ed i rischi finanziari, oggi devono necessariamente essere presi in considerazione come scenari realistici.

Noi lo abbiamo già fatto, e da mesi: le conseguenze si vedono nella pratica e quindi sui portafogli dei nostri Clienti.

Oggi però anche altri operatori, quelli “tradizionali”, prendono in esame scenari estremi, che soltanto 18 mesi fa sarebbero stati definiti “da catastrofisti”. Oggi, tutti quanti stiamo diventando, un giorno alla volta, un po’ più catastrofisti.

Leggete ad esempio questo studio di Deutsche Bank della settimana scorsa, che sbbiamo scelto per voi tra i mille studi e ricerche che abbiamo ricevuto sul tema inflazione.

Anzi, per la precisione, in questo caso il tema è: iper-inflazione.

Ancora una volta, vi facciamo notare che ritorna in evidenza il tema di investimento “Anni Settanta”, da noi portato alla vostra attenzione dfin dall’estate del 2020.

As excerpted from "Inflation: The defining macro story of this decade" a must-read report written by Deutsche Bank's global head of research, David Folkerts-Landau, co-authored by Peter Hooper and Jim Reid.

Ronald Reagan (1978): “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

Joe Biden (2021): “A job is about a lot more than a paycheck. It’s about dignity. It’s about respect. It’s about being able to look your kid in the eye and say everything will be okay. Too many people today can’t do that – and it’s got to change.”

Janet Yellen (2021): “Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big”.

Jerome Powell (2021): “During this time of reopening, we are likely to see some upward pressure on prices … But those pressures are likely to be temporary as they are associated with the reopening process.”

Larry Summers, (2021): “I think this is the least responsible macroeconomic policies we’ve had in the last 40 years.”

The above quotes highlight that US macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.

Close

It is no exaggeration to say that we are departing from neoliberalism and that the days of the new-liberal policies that begun in the Reagan era are clearly fading in the rear view mirror. The effects of this shift are being compounded by political turmoil in the US and deeply worrying geopolitical risks.

As we step into the new world, we are no longer sure how much of what we thought we understood about financial and macro-economics is still valid. We have lived through a decade of extraordinary and unconventional monetary stimulus to prevent economies from sliding into deflation, but this effort barely succeeded in propping up growth at what have been historically low levels.

The most immediate manifestation of the shift in macro policy is that the fear of inflation, and of rising levels of government debt, that shaped a generation of policymakers is receding. Replacing it is the perspective that economic policy should now concentrate on broader social goals. Such goals are as necessary as they are admirable. They include greater social support for minority groups, greater equality in income, wealth, education, medical care, and more broad-based economic opportunity and inclusion. They should be front and center of the policies of any government in these times.

The increased focus on these priorities can be seen not just in the ongoing expansionary policy response to the pandemic, but also in policymakers’ other longer-term objectives, such as combating climate change and tightening the social safety net. It is also evident in recent legislative and regulatory efforts to achieve a more balanced distribution of economic and political power between the corporate sector, labour, and the consumer.

Despite the shift in priorities, central bankers must still prioritize inflation. Indeed, history has shown that the social costs of significantly higher inflation and greatly expanded debt servicing obligations make it hard, if not impossible, to reach the social goals that the new US administration (among others) is keen to achieve. We fear that the vulnerable and disadvantaged will be hit first and hardest by mistakes in policy.

The foundation for today’s paradigm shift in policy was laid last decade. After the Global Financial Crisis, concerns turned to high and rising levels of sovereign debt. Market fears of peripheral Eurozone countries led governments to pre-emptively move towards fiscal consolidation before bond market vigilantes could force them. The effect of austerity was worsened as banks and consumers simultaneously tried to repair their balance sheets. Hence low interest rates and asset purchases continued even as economies were relatively stagnant and inflation stayed low.

Even before the pandemic, this orthodoxy was being increasingly questioned. Voters had rendered their verdict at the ballot box as inequality and lacklustre growth fuelled support for populist parties and unconventional leaders. Meanwhile, continued low inflation despite low interest rates led economists to be more relaxed about the levels of debt that countries could sustain.

The pandemic has accelerated this shift in thinking. Sovereign debt has risen to levels unimaginable a decade ago with large industrial countries exceeding red-line levels of 100% of GDP. Yet, there is little serious concern about debt sustainability on the horizon from investors, governments or international institutions. Similarly on inflation, the vast majority of central bankers and economists believe any rise in prices away from the historically-low levels of the last decade will be transitory. It is assumed that base line effects, one-offs, and structural forces will continue to suppress prices.

So two of the biggest historic constraints on macroeconomic policy – inflation and debt sustainability – are increasingly perceived as not binding. In turn, the removal of these constraints has opened the door for new goals for macro policy, which go far beyond simply stabilizing output across the business cycle.

This changing approach to macro policy has been formalized in the Federal Reserve’s operating procedures, making a broader interpretation of its mandate possible. Unlike in previous eras, when it was common practice to pre-empt inflation overshoots with higher rates, today’s Fed has said they want to see actual progress, not just forecast progress. The new average inflation targeting approach only increases tolerance for inflation.

Where the US leads, others tend to follow. Even in Germany, with its reliable fiscal discipline, there is growing support for to reform the constitutional debt brake in order to permit more deficit spending. And although in aggregate the EU’s fiscal stimulus has been more limited than that seen in the US, the arrival of the €750bn Recovery Fund financed by collective borrowing potentially opens the way for further such packages in response to future crises. It is hard to see the ECB stepping back from helping to finance such fiscal investments in the continent or moves to promote further integration.

In short, we are witnessing the most important shift in global macro policy since the Reagan/Volcker axis 40 years ago. Fiscal injections are now “off the charts” at the same time as the Fed’s modus operandi has shifted to tolerate higher inflation. Never before have we seen such coordinated expansionary fiscal and monetary policy. This will continue as output moves above potential. This is why this time is different for inflation.

Even if some of the transitory inflation ebbs away, we believe price growth will regain significant momentum as the economy overheats in 2022. Yet we worry that in its new inflation averaging framework, the Fed will be too slow to damp the rising inflation pressures effectively. The consequence of delay will be greater disruption of economic and financial activity than would be otherwise be the case when the Fed does finally act. In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets.

History is not on the side of the Fed. In recent memory, the central bank has not succeeded in achieving a soft landing when implementing a monetary tightening when inflation has been above 4%.

Policymakers are about to enter a far more difficult world than they have seen for several decades.

Conclusion

We worry that inflation will make a comeback. Few still remember how our societies and economies were threatened by high inflation 50 years ago. The most basic laws of economics, the ones that have stood the test of time over a millennium, have not been suspended. An explosive growth in debt financed largely by central banks is likely to lead to higher inflation. We worry that the painful lessons of an inflationary past are being ignored by central bankers, either because they really believe that this time is different, or they have bought into a new paradigm that low interest rates are here to stay, or they are protecting their institutions by not trying to hold back a political steam roller. Whatever the reason, we expect inflationary pressures to re-emerge as the Fed continues with its policy of patience and its stated belief that current pressures are largely transitory. It may take a year longer until 2023 but inflation will re-emerge. And while it is admirable that this patience is due to the fact that the Fed’s priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb.

It is a scary thought that just as inflation is being deprioritized, fiscal and monetary policy is being coordinated in ways the world has never seen. Recent stimulus has been extraordinary and economic forecasting, which is difficult at the best of times, is becoming harder by the day. Fractured politics amplifies the problem. Needless to say, the range of global outcomes over the coming years is wide.

When central banks are eventually forced to act on inflation, they will find it themselves in a difficult, if not untenable, position. They will be fighting the increasingly-ingrained perception that high levels of debt and higher inflation are a small price to pay for achieving progressive political, economic and social goals. That will make it politically difficult for societies to accept higher unemployment in the interest of fighting inflation.

Eventually, though, any social priorities that policymakers have will be set aside if inflation returns in earnest. Rising prices will touch everyone. The effects could be devastating, particularly for the most vulnerable in society. Sadly, when central banks do act at this stage, they will be forced into abrupt policy change which will only make it harder for policymakers to achieve the social goals that our societies
need.

Low, stable inflation and historically low interest rates have been the glue that have held together macro policy for the last three decades. If, as we expect, this starts to unravel over the next year or two, then policymakers will face the most challenging years since the Volcker/Reagan period in the 1980s.

La riunione della Federal Reserve della settimana prossima risulterà di grande interesse: i mercati finanziari di tutto il Mondo saranno attenti ad ogni più piccolo cambiamento di tono, ad ogni più piccola sfumatura linguistica.

Come abbiamo scritto la settimana scorsa in questo Blog, e come è stato confermato dai dati della settimana appena conclusa, la Federal Reserve si trova in un angolo.

Gli spazi di manovra della Banca Centrale USA si sono ristretti, in modo drammatico, ed in soli due mesi. La Federal Reserve oggi può continuare a sostenere la sua teoria di una “inflazione transitoria”, ma non avrebe più la possibilità di annunciare nuove misure espansive a fronte di nuovi shocks. La Federal Reserve, adesso può andare solo in una direzione: può ripetere che “noi non faremo nulla per un lungo periodo di tempo”, ma la direzione è segnata, ed è restrittiva.

Come detto, sui mercati finanziari sarà enorme l’attesa per le parole della Federal Reserve, che però come sempre saranno “allineate e compatte dietro alla linea ufficiale”. Non è detto però che, attraverso “indiscrezioni”, non trapeli qualche voce di dissenso.

Un dissenso che, tra i membri attuali del Consiglio della Fed, è per il momento tenuto nascosto: tra gli ex-membri dello stesso Consiglio, al contrario, il dissenso è non solo diffuso ma pure espresso ad alta voce. Ad esempio, dall’ex vice-Chairman della Federal Reserve Donald Kohn, con le parole che potete leggere qui di seguito.

L’interesse di queste parole sta in questo: ci porta a chiederci in quanti, all’interno dell’attuale Consiglio, la vedono allo stesso modo.

Former Federal Reserve Vice Chairman Donald Kohn voiced concern on Tuesday that the U.S. central bank is not well-positioned to deal with a rising threat of faster inflation.

“There are risks to the upside for inflation,” Kohn, who served 40 years at the Fed including four as vice chair, said.

He told a webinar sponsored by the American Enterprise Institute that a new monetary framework that policy makers adopted last year heightened the chances of faster price gains.

This is “a framework that’s not designed to deal with the upside risks to inflation,” Kohn, who’s now a senior fellow at the Brookings Institution, said. “That’s the worrisome piece.”

The danger is that the central bank will end up having to raise interest rates further and faster to keep inflation in check, he added.

Under its new modus operandi, the Fed is deliberately aiming to push inflation above its 2% target after years of falling short of that goal. It’s also forsworn lifting interest rates solely to prevent unemployment from falling to levels that it would have considered too low in the past.

Kohn said he doesn’t think the Fed should change policy just yet. But he wants officials to openly acknowledge the inflationary dangers they face and reflect that in their next set of quarterly economic projections.

“The Fed needs to be more open and honest than I think it was in the last round of projections about what it is actually expecting to do,” he said. “That in itself will be a constructive step.”

The Federal Open Market Committee will release updated economic forecasts following its policy making meeting next week. In March, a preponderance of policy makers didn’t see the Fed raising interest rates from their current level near zero until after 2023.

La riunione della prossima settimana, alla Federal Reserve, risulterà molto più interessante, per i mercati finanziari, rispetto alla riunione alla BCE di giovedì scorso.

Da molti anni, per i mercati finanziari l’importanza della BCE è scesa molto vicino allo zero: la BCE non ha più margini di manovra, ha già fatto “tutto ciò che si può fare”, come disse mario Draghi anni fa, e non ha più munizioni, non ha più margini di manovra, non ha più idee.

La BCE è prigioniera delle sue stesse scelte: da anni non agisce, si limita a re-agire.

Di questo sono testimonianza sia le economie reali di Eurozona, sia i mercati finanziari della stessa Eurozona, come tutti voi sapete.

La Federal Reserve è in una posizione diversa, per una serie di ragioni che questo Blog vi ha già presentato e che non ripeteremo. I mercati finanziari ascoltano la Federal Reserve: anzi, si potrebbe dire che il Mondo intero ascolta la Federal Reserve.

Chiunque abbia un medio livello di informazione ed una media capacità di analisi si rende però conto che anche la Federal Reserve oggi è in un angolo: ed è una posizione molto scomoda, ed anche pericolosa. Recce’d ne ha scritto la settimana scorsa, in tre diversi Post, mentre oggi ci affidiamo alle parole scritte questa settimana da Mohamed El Erian su Project Syndicate, che riportaimo per voi lettori del Blog qui sotto.

Sarà molto utile riflettere, per le vostre presenti e future scelte di investimento, sulle analogie che el Erian mette in evidenza, tra il 2007 ed il 2021. Se lo capite oggi, sul piano pratico potrebbe ancora esservi utile. Se invece lo capirete solo tra un po’ di tempo, allora non vi servirà più a nulla.

Jun 9, 2021 Mohamed A. El-Erian

Given recent history, policymakers would be unwise merely to hope for a best-case scenario in which a strong and quick economic recovery redeems the enormous run-up in debt, leverage, and asset valuations. Instead, they should now act now to moderate the finance sector’s excessive risk-taking.

CAMBRIDGE – After the 2008 global financial crisis, governments and central banks in advanced economies vowed that they would never again let the banking system hold policy hostage, let alone threaten economic and social well-being. Thirteen years later, they have only partly fulfilled this pledge. Another part of finance now risks spoiling what could be – in fact, must be – a durable, inclusive, and sustainable recovery from the horrid COVID-19 shock.

The story of the 2008 crisis has been told many times. Dazzled by how financial innovations, including securitization, enabled the slicing and dicing of risk, the public sector stepped back to give finance more room to work its magic. Some countries went even further than adopting a “light-touch” approach to bank regulation and supervision, and competed hard to become bigger global banking centers, irrespective of the size of their real economies.Unnoticed in all this was that finance was in the grip of a dangerous overshoot dynamic previously evident with other major innovations such as the steam engine and fiber optics. In each case, easy and cheap access to activities that previously had been largely off-limits fueled an exuberant first round of overproduction and overconsumption.Sure enough, Wall Street’s credit and leverage factories went into overdrive, flooding the housing market and other sectors with new financial products that had few safeguards. To ensure quick uptake, lenders first relaxed their standards – including by offering so-called NINJA (no income, no job, no assets) mortgages that required no documentation of creditworthiness from the borrower – and then engaged in outsize trading among themselves.By the time governments and central banks realized what was going on, it was too late. To use the American economist Herbert Stein’s phrase, what was unsustainable proved unsustainable. The financial implosion that followed risked causing a global depression and forced policymakers to rescue those whose reckless behavior had created the problem.To be sure, policymakers also introduced measures to “de-risk” banks. They increased capital buffers, enhanced on-site supervision, and banned certain activities. But although governments and central banks succeeded in reducing the systemic risks emanating from the banking system, they failed to understand and monitor closely enough what then happened to this risk.

In the event, the resulting vacuum was soon filled by the still lightly supervised and regulated non-banking sector. The financial sector thus continued to grow markedly, both in absolute terms and relative to national economies. Central banks stumbled into an unhealthy codependency with markets, losing policy flexibility and risking the longer-term credibility that is critical to their effectiveness. In the process, assets under management and margin debt rose to record levels, as did indebtedness and the US Federal Reserve’s balance sheet.

Given the magnitudes involved, it is not surprising that central banks in particular are treading very carefully these days, fearful of disrupting financial markets in a manner that would undermine the post-pandemic economic recovery. On a financial-sector highway where too many participants are driving too fast – some recklessly so – we have already had three near-accidents this year involving the government debt market, retail investors pinning hedge funds in a corner, and an over-levered family office that inflicted a reported $10 billion of losses on a handful of banks. Thanks to some good fortune, rather than official crisis prevention measures, each of these events did not cause a major pileup in the financial system as a whole.Central banks’ long-evolving codependent relationship with the financial sector seems to have led policymakers to believe that they had no choice but to insulate the sector from the pandemic’s harsh reality. That resulted in an even more stunning disconnect between Wall Street and Main Street, and gave a further worrisome boost to wealth inequality. In the 12 months to April 2021, the combined wealth of the billionaires on Forbes magazine’s annual global list increased by a record $5 trillion, to $13 trillion. And the world’s billionaire population grew by nearly 700 from the previous year, reaching an all-time high of more than 2,700.

Policymakers would be unwise merely to hope for the best – namely, a type of financial deus ex machina in which a strong and quick economic recovery redeems the enormous run-up in debt, leverage, and asset valuations. Instead, they should act now to moderate the financial sector’s excessive risk-taking. This should include containing and reducing margin debt; enforcing stronger suitability criteria on broker dealers; enhancing assessment, supervision, and regulation of non-banking institutions; and reducing the tax advantages of currently favored investment gains.

These steps, both individually and collectively, are not in themselves a panacea for a persistent and growing problem. But that is no excuse for further delay. The longer that policymakers allow the current dynamics to grow, the greater the threat to economic and social well-being, and the bigger the risk that yet another crisis erupts – unfairly and despite a decade of promises – in the same sector as last time.

Loro sono in un angolo: e noi ci guadagnamo.

Si fa così, se si vuole investire con successo (e non giocare alla roulette del casinò): si esamina la realtà, si studiano le mosse degli altri, e su questo si fondano le proprie decisioni di investimento.

Prendiamo ad esempio le Banche Centrali: con un bombardamento quotidiano di retorica, cercano di fare vedere agli investitori ciò che non esiste nella realtà di ogni giorno.

Ma gli ultimi 20 anni di storia ci insegnano che questa loro strategia (creare un’illusione, un miraggio) fallisce sempre, e che la realtà vince ogni volta.

Ragione per la quale, un investiore che sia intelligente ed informato non deve avere timore di “andare contro le Banche Centrali”: tra le Banche Centrali e la realtà dei fatti, vince e vincerà sempre la realtà dei fatti.

Durante la prossima settimana, in Cina e negli Stati Uniti, verranno pubblicati i nuovi dati per l’inflazione, che già il mese scorso suscitarono una grandissima attenzione tra gli operatori di mercato.

Allo scopo di analizzare i dati in uscita la settimana prossima, ed anche le successive reazioni dei mercati, vi potrò essere utile ascoltare l’opinione espressa un mese fa da Mohamed El Erian in questo video, opinione che può aiutarvi ad aprire i vostri occhi ed andare un pochino altre la retorica dominante che trovate ogni mattina sul vostro quotidiano oppure in TV al TG Economia o su CNBC.

Potrete così tentare di agire (anche se con molto ritardo) sui vostri investimenti in modo tale da posizionarvi per ciò che sta per accadere invece che ragionare sempre usando lo specchietto retrovisore.

Pensare che “quello che è salito fino a ieri” sia un buon investimento è l’errore più diffuso degli investitori finali, spinti in quella direzione dal proprio promotore finanziario, private banker, wealth manager e magari pure dal robot.

Per aiutarvi a ragionare nel vostro interesse, ed utilizzando la vostra testa, anziché farvi stordire ed imbambolare dal fiume della retorica che passa attraverso i media, vi proponiamo di ascoltare poi con attenzione anche un secondo video, ed infine di leggere un articolo del settembre 2019 (notate bene la data).

L’interesse di questo articolo che riportiamo più sotto, dal nostro punto di vista, sta in questo: alla fine del 2019, secondo El Eriano, le Banche Centrali erano già “nell’angolo”. Cosa sulla quale noi già allora, nel 2019, eravamo totalemnte d’accordo (mentre, noatte bene, noi già allora eravamo del tutto in disaccordo sulle conclusioni dell’articolo di El Erian, ed oggi è lui, e non noi, ad avere cambiato del tutto la sua idea).

Sulla base di questo spunto, è utile portare la vostra attenzione sul fatto che l’epidemia COVID, il vaccino ed il successivo Piano Biden sono stati … la manna dal cielo, per tutti i banchieri centrali: che alla fine del 2019 stavano sull’orlo del totale fallimento (delle loro politiche) e sono stati “salvati” proprio dal presentarsi di una emergenza ancora più grande di tutte le precedenti emergenze. Solo grazie a questo, questi signori hanno potuto convincere il pubblico che la ricetta salvifica consiste nel fare “ancora di più” di una politica che non ha mai funzionato.

Ricordare quei mesi del 2019, prima dei COVID, è utile per tutti gli investitori: ma in modo particolare per quegli investitori che si sono fatti ingannare dal tema “tutto tornerà come prima”. “Come prima” significa come in quel 2019, quando le Banche Centrali erano già “nell’angolo”.

Proprio come sono oggi.

Noi ed i nostri Clienti da questa situazione ricaveremo soldi guadagni per i nostri portafogli, mentre altri pagheranno per i loro errori di valutazione, per le loro mosse scondiderate, e per la loro irresponsabilità.

The European Central Bank and the Federal Reserve will be under even greater scrutiny over the next 10 days as their policy-making committees discuss recent economic developments, update their assessment of prospects and adopt whatever actions and guidance they deem necessary. The outcome will most likely satisfy those looking for the world’s two most influential central banks to further loosen monetary policy. It will most likely do little to improve what has been a steadily darkening outlook for the global economy. And it will without a doubt disappoint those, both inside and outside the central banks, who are looking for the spotlight to pivot away from monetary policy to structural reforms and, for some European countries, fiscal tools that are better suited for the for the task at hand. Indeed, it could well only intensify the spotlight on monetary policy, making even more explicit the increasingly tight corner these institutions are in.

Don’t get me wrong. Most central banks, and the many of us who still have deep respect and affection for them, would like nothing more than for them to deliver better economic outcomes or hand off efforts to bolster the global economy to others or both. The best that we can hope for, however, is that they will be able to navigate the minefield they are in without being accused of not doing enough, of causing economic harm and of contributing to undue financial volatility. Indeed, the most likely outcome is that they will be viewed as taking measures that are deemed ineffective or, even worse, counterproductive. And it’s a dilemma that is unlikely to be resolved soon.

This is an ironic situation for central banks. On paper, they have powerful tools at their disposal such as political autonomy, talented staff members and partial control of the amount and cost of money. This allows them to respond quickly, to modify the behaviors of households and businesses and to be bold when needed. But because their exceptional actions over the last decade have not been supported by proper responses from other policy-making agencies, they have instead contributed to their current dilemma. And the more alone the central banks remain in front, the happier markets and governments will be to delegate more of their responsibilities to them and the more that will be expected from them. Simply put it is becoming increasingly difficult for central banks either to move forward or to go back. It’s a dilemma that has played out particularly loudly in public over recent weeks.

Consider the Fed, whose policy complexities, while significant, pale in comparison to those of the ECB. On the one side, President Donald Trump has repeatedly attacked the Fed for not doing enough to support his growth agenda while on the other, Bill Dudley, the former president of the New York Fed, the most powerful of the system’s regional banks, has criticized it for doing too much. Diametrically opposing views have also been publicized from inside the Fed, with some Federal Open Market Committee members arguing there is no need for an interest rate cut this month and others advocating a 50 basis point reduction. Which takes us to the ECB. Unlike the Fed, it’s confronted by unambiguous evidence of rapidly declining economic momentum.

As such, it is under market pressure to cut interest rates further into negative territory this month and to resume large-scale asset purchases in the next few weeks. With investors having already priced in such steps, failure to follow through would most likely cause financial volatility that risks undermining an already fragile regional economy. Yet few expect such actions to materially improve the euro zone’s economic prospects for a simple reason: A further loosening of financial conditions does nothing to help eliminate the structural and cyclical impediments to growth.

Even worse for the ECB is a slowly spreading view that warns of the outright costs of further monetary policy stimulus. The crux is that the persistence of negative interest rates eats away at the integrity of a well-functioning market-based economy by constraining bank credit, encouraging irresponsible risk taking by non-banks, discouraging the provision of financial protection products that are an important part of a household’s financial security and causing misallocation of resources.

All of this puts the ECB in a bind, and not just for its meeting later this month. It can either risk financial and economic dislocations from disappointing investors that are hooked on ample and predictable central bank liquidity or deliver on market expectations only to risk doing more harm than good to the economy. The good news is there is a way out of the mess. The bad news is that it requires political will and courage at the national, regional and multilateral levels that so far has been elusive. Absent a significant fiscal commitment from governments and other policy makers, the central banks’ dilemma will only become more acute.