Forse, tra i nostri lettori, c’è qualcuno che è stato sorpreso dalla assoluta mancanza di reazione dei mercati finanziari ai dati dalla Cina e dagli Stati Uniti per l’inflazione di quest’ultima settimana.

Non i nostri Clienti, che noi avevamo adeguatamente informato e preparato prima. Loro non sono stati colti di sorpresa (anche a questo serve il lavoro del vostro consulente)

I due dati sono dati importanti, ed anzi importantissimi, per ogni investitore e anche per i mercati finanziari, ovviamente. Ma non è alla reazione immediata che occorre guardare, in questo specifico caso.

I mercati hammo mostrato confusione e terrore. Confusione perché nessuno sapeva, esattamente, che cosa fare (e quindi, quei pochi, hanno deciso “facciamo come se non fosse successo nulla”). E soprattutto terrore: molti lavorano nel settore e sui mercati da meno di 25 anni e non hanno mai visto nulla di diverso da un contesto dominato dalla “fine dell’inflazione”. E adesso, hanno paura: sono stati buttati all’improvviso nell’acqua gelata, dopo che fino a solo due mesi fa tutti (dalla Banca Centrale Europea alla Fed, da Goldman Sachs a Morgan Stanley, da UBS a Paribas) giuravano sul fatto che “mai” si sarebbe ritornati ad una situazione come quella che oggi, solo due mesi dopo, tutti voi vedete.

Normale la mancanza di reazioni: prima, è necessario riordinare le idee, per poi affrontare un lunghissimo cammino, dal “Mondo di prima” al “Mondo di oggi”.

Una cosa che, sui mercati finanziari, richiederà anni di tempo per completarsi.

I medesimi problemi che noi investitori viviamo oggi, messi di fronte ad uno scenarsio del tutto nuovo, li vivono ogni giorno, ed in modo altrettanto profondo, i Banchieri Centrali.

I quali non sanno che cosa pensare, ed in aggiunta a questo neppure possono dire al pubblico ciò che davvero pensano, perché sono obbligati ad attenersi alla linea ufficiale, anche oggi che chiaramente tutti vediamo che quella linea era sbagliata.

Su questo punto, abbiamo scritto in modo approfondito, anche in questo Blog e proprio la settimana scorsa, spiegando il perché a giudizio nostro e di molti altri qualificati osservatori “loro adesso sono nell’angolo”.

Ci sono ovviamente alcune eccezioni, e diventa molto utile coglierle: un esempio è il Capo Economista della Banca di Inghilterra, che è arrivato molto vicino alla scadenza del suo mandato, e proprio per questa ragione può esprimersi adesso in modo molto molto più diretto, molto più chiaro e molto più utile per noi investitori.

Per questo, tra cento e cento interventi sull’inflazione, noi abbiamo selezionato per voi questo articolo, che qui sotto vi riproponiamo.

The beast of inflation is stalking the land again

This is a dangerous moment, not just for central bankers but for the wider economy.

By Andy Haldan

Internet searches for the term ­“inflation” have picked up sharply this year. But it is not just social media platforms where inflation is trending. In financial markets and among businesses, ­inflation has emerged as the new narrative and, for some, a key source of concern. After half a century during which it has slept quietly, inflation has re-emerged blinking into the post-pandemic light.

The stakes are high when it comes to keeping inflation low and stable. High for central banks with a mandate to keep inflation in check. High for financial markets where assets are priced for a prolonged period of inflationary somnolence. High for companies and consumers, who would bear the brunt of a rising cost of doing business or living. And high for governments that have borrowed big to cushion the Covid crisis and whose borrowing costs would then ­assuredly rise.

In the midst of a global pandemic, uncertainty around future inflation paths is, of course, unusually great. For example, no one could reasonably predict with any accuracy what course the virus might take next and its implications for the pace of opening up, in the UK and internationally. And there remains a risk a mutant, vaccine-resistant strain could scupper the best-laid plans of governments, businesses and households, suppressing spending and inflation.

But, in my opinion, these risks are no longer squarely skewed to the downside. Indeed, I believe the balance of risks has shifted decisively over the past few months. A rapid resurgence in both spending and ­inflation is now a plausible central scenario for a growing number of businesses and economists. This case needs to be understood, monitored and potentially acted on by central banks if the inflation genie is not to escape after a half-century of captivity.

Most people agree that, as vaccine ­programmes are rolled out and restrictions are loosened, the economy will bounce back relatively rapidly towards its pre-Covid base. An atypically sharp fall in the economy, as restrictions were put in place last year, ought to be mirrored in an atypically sharp recovery as restrictions are lifted. For that reason, and virus and vaccine developments notwithstanding, a third “V” – for the shape of the economic recovery – was always on the cards.

Recent economic indicators in the UK, with very few exceptions, suggest the recovery is happening at least as fast as any mainstream forecaster was expecting. We can see that in increased traffic on the roads, footfall in the shops and bookings in the pubs and restaurants. Retail sales spending, housing transactions, private car sales, surveys of consumers and companies, restaurant bookings, job vacancies – all have already recovered to at or above their pre-Covid levels.

This resurgent demand is bumping up against a supply side of the economy slowly re-emerging after more than a year of forced inactivity, businesses paused, workers furloughed. Faced with an imbalance between surging demand and slow-moving supply, the laws of economic gravity suggest prices should rise. And so they have, across almost all commodities and assets and at real pace. Since the start of the year, the price of oil has risen by over 30 per cent, gas 10 per cent, copper 26 per cent, US lumber 50 per cent, food 17 per cent and houses by more than 5 per cent.

If you speak to businesses, the list of items whose prices are now rising has lengthened, and the price rises themselves have steepened, as the year has progressed: from concrete to bricks to chips to plasterboard. This is clear in the data too, with the cost of business inputs in the UK currently running at its highest level since 2008. These pipeline price pressures are now working their way through business supply-chains, with companies’ output prices rising at their fastest rate since at least the mid-1990s.

***

Rises in the cost of business inputs, caused by a one-off bounce-back in demand and temporary bottlenecks in supply, are not by themselves a cause of acute inflationary concern. Rises in input costs may be absorbed in companies’ margins rather than being passed through to end consumers, or offset by squeezes in workers’ wages. In either case, the rise in inflation would be temporary and the challenge for central banks, governments, business and households much reduced.

But there are plenty of reasons why that benign inflation scenario may not materialise. The momentum in demand may prove persistent rather than one-off. Bottlenecks in supply may prove sustained rather than fleeting. Pricing power among companies, and bargaining power among workers, may be bolstered by resurgent demand rather than remaining low. While nothing is assured, I believe the evidence on each is mounting in one direction.

Let’s start with the recovery in spending. The recovery after the global financial crisis was a faltering one as three significant headwinds combined: psychological scarring of people’s risk appetites and animal spirits; financial scarring due to the holes blown in banks’, companies’ and households’ balance sheets; and fiscal scarring as the UK government sought to repair its own balance sheet. This triple scarring made for an anaemic recovery.

Today, none of these headwinds is present. Indeed, each is now potentially a tailwind. Although it is early days, sentiment among businesses and consumers has already shifted decisively, with company and household confidence climbing to above pre-Covid levels. Psychologically, although obviously not true for all, most people seem keen to make up for the lives they have not been living for the past 15 months, with huge pent-up demand for holidays, hospitality and other types of social spending.

By comparison with most recessions, aggregate financial balance sheets are also strong. Forced saving during the pandemic means that, unlike in 2008-09, large cash-piles have been accumulated, totalling around £200bn among households (15 per cent of annual consumption spending) and over £100bn among companies (half of annual investment spending). These ­accidental savings provide the financial fuel to fire people’s spending desires.

As for fiscal policy, what a difference a decade makes. Fiscal deficits across advanced economies currently stand at 15-30 per cent of GDP, with the UK towards the bottom of that range and the US towards the top, as governments serve as emergency-responders to the Covid crisis. A new fiscal orthodoxy has emerged with debts and deficits now seen as a force for good in wartime and, potentially, peacetime too. This orthodoxy is being led by the Biden administration in the US, which has a further $6trn in the fiscal pipeline for peacetime, to accompany the $6trn of rescue response that it has so far spent to fight the Covid war.

All of this provides good grounds for ­believing the surge in demand currently under way will persist, not fade, with time. My best guess is that the UK economy will move from bounce-back to boom without passing “go”, as cash is splashed and the holy trinity of animal spirits, buoyant balance sheets and fiscal pump-priming combine. Although we have no historical case law to guide us, the collective psychology of the nation will, I suspect, switch from low-­level anxiety to exuberance.

If so, what will be the response from the economy’s supply side? Can it flex in response to resurgent demand in a way that limits price rises? Initial ­indications are not encouraging. Bottlenecks have very quickly emerged, not just in commodity markets but in the jobs market too, despite millions of workers remaining on furlough. Reports of skills shortages are rising and broadening across the economy, ranging widely across the skills spectrum from technology to distribution to hospitality. Where skills shortages lead, wage rises tend to follow: lorry-driver pay is reportedly up 20 per cent on the year.

It could be argued that these are the inevitable teething problems associated with opening up after lockdown, as businesses and workers adapt, gingerly, to a rapidly growing economy. But that, I think, underestimates the scale and duration of the challenge ahead. The economy will emerge from this crisis in a different, perhaps very different, ­sectoral shape than it entered. Air stewards and shop assistants cannot instantly retrain as bricklayers or IT experts. Skills shortages will persist.

These Covid-related frictions are being amplified by longer-term forces pushing in the same direction. For several decades the UK and other countries were a beneficiary of globalisation and demographic trends. Free flows of international goods and people increased the supply capacity of the UK economy, reducing the price and increasing the quantity of both goods and workers. Indeed, these forces were key drivers of the global disinflationary down-draught of the past half-century.

***

Those trends, in the UK and elsewhere, have now stalled or even reversed. The forces supporting globalisation have been subject to a challenge given impetus by the Covid crisis and, in the UK, Brexit. The latter is already having a marked impact on the supply of EU labour, adding to staff shortages across sectors from agriculture to health to IT. At the same time, longevity trends have gone from tailwind to headwind as more of the UK workforce retires – the nation’s workforce has been falling for a decade.

If resurgent demand meets shrinking or static supply, the laws of economic gravity mean persistent price pressures will be hard to escape. Booming consumer demand gives companies pricing power to pass on cost increases to consumers. And tightness in the jobs market gives workers ­bargaining power to increase wages over and above rates of inflation. If wages and prices begin a game of leapfrog, we will get the sort of wage-price spiral familiar from the 1970s and 1980s.

Any rise in inflation will not be on the scale of the 1970s or even the 1980s. Since then, we have dug much deeper institutional foundations, with inflation targets and central bank independence set in statute. But even muted wage-price spirals could leave inflation well above target for a protracted period. And the longer that above-target period lasts, the greater the risk inflation expectations are de-anchored, adding to inflationary persistence. In ­financial markets, inflation expectations have already nudged up above their average levels in the inflation-targeting era.

***

Of course, nothing about this ­upside scenario is certain, any more than there can be confidence the rise in inflation will be temporary. But policy is about balancing risks and these have shifted swiftly, significantly and decisively in an upward direction since the start of the year. This makes it a dangerous moment, not just for central bankers but for the wider economy.

Indeed, in my view this is the most ­dangerous moment for monetary policy since inflation-targeting was first introduced into the UK in 1992 after the European Exchange Rate Mechanism debacle. During the Covid crisis, central banks have ­followed the same playbook as after the global financial crisis: a large and rapid crisis was met with a large and rapid monetary policy response. But after the global ­financial crisis, the economy recovered slowly so monetary policy was normalised slowly.

This time is very different. The economy is rebounding rapidly. Yet the guidance issued by central banks implies a path for ­policy normalisation every bit as sedate as after the global financial crisis. Having ­followed the global financial crisis playbook on the way in – rightly – there is a risk central banks also follow it on the way out. This would be a bad mistake. If realised, this risk would show up in monetary policy acting too late.

Friedrich Hayek once referred to inflation as the tiger whose tail central banks hold, usually with trepidation and ideally from a safe distance. If central bankers wait to see the whites of this tiger’s eyes before acting, they risk having to run like the wind to avoid being eaten. Waiting too long risks interest rate rises that are larger and faster than anyone would expect or want. It runs the risk of the brakes needing to be slammed on to an overheating economic engine.

No one wins in that situation. Not central banks, whose mandates will have been breached and which would need to ­perform an economic handbrake turn for which they would not be thanked. Not businesses, for whom a higher cost of borrowing and a slowing economy would, with debts high, be an unwelcome surprise. Not households facing the twin threat of a rising cost of living and a rising cost of borrowing. And not governments, whose debt servicing costs would rise, potentially casting doubt on their capacity to run big debts and ­deficits. Ouch.

The policy lesson is a clear one, and an old one. The inflation tiger is never dead. While nothing is assured, acting early as inflation risks grow is the best way of heading off future threat. This is monetary policy 101. As experience in the 1970s and 1980s taught us, an ounce of inflation prevention is worth a pound of cure.

Latterly, the Covid crisis has taught us the same lessons about the severe costs of imposing restrictions too late in the day to suppress an imminent threat. These lessons, old and new, are ones economic ­policymakers the world over now need to act on. 

Andy Haldane is the chief economist at the Bank of England

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.