Via ZeroHedge, February 17:
By Michael Every of Rabobank
A new 'State of Statism'
We can debate the latest numbers. The Philly Fed flashed a recession warning, but US PPI data were hot, and initial jobless claims still show a very firm labor market. In Australia, the jobs report was likely much better than the weak headline suggested. Timiraos at the WSJ, who may be channelling the Fed, notes that January CPI and PPI lead economists to estimate the US core PCE deflator, the Fed’s preferred inflation gauge, from +0.47% m-o-m (+4.4% y-o-y) to +0.55% m-o-m (+4.5% y-o-y) vs. 4.4% y-o-y in December.
The words we hear are unequivocal. The RBA’s Lowe just told Australian lawmakers the ‘lowest sustainable level of unemployment is in the low 4s’, and he didn’t think January jobs data were accurate as most firms still can’t find enough workers. While he stressed the need to be flexible, looking at the risks of not doing enough on rates and doing too much, he underlined: “This is the first test of a new reality that most central banks are going to face.” Prior to that, the FOMC’s Mester and Bullard stressed the best way to pass that test is to push rates higher – both talked about potential 50bps steps again. Before them, the ECB’s Lane said QT of €500bn spread over 12 quarters would only lower inflation by 0.15 percentage points and output by 0.2ppts, although there may be “non-linearities in the exit process.”(!)
What central banks’ deeds will look like remains to be seen, but it’s clear they are going to err on the side of hawkishness. The larger issue is what the collateral damage is, how sticky inflation proves, and what the new economic structure looks like after this unfolds. That involves looking forward via emerging trends. In my view, it also means looking beyond traditional market metrics. After all, if this is a metacrisis/polycrisis, why should we only focus on core PCE or unemployment as harbingers?
Looking forward more broadly, we can already see an *emerged* trend. The top headline in the Financial Times today is ‘Pentagon’s top China official to visit Taiwan amid rising bilateral tensions’, the first visit in 40 years. Yesterday, the same top headline was ‘Ukraine war pushes US to review arms stockpiles’. The Guardian reports ‘UK rehearsing economic fallout scenarios if China invades Taiwan’. The Asia Times says ‘Japan’s remilitarization aiming for more arms exports’. In Europe, the BBC says ‘Lukashenko warns Belarus will join Russia in war if attacked’. The SCMP carries analysis on ‘Prigozhin, Simonyan, Medvedev: the rise of the Russian hawk’ arguing whoever follows Putin is likely to be worse for the West. PBS says ‘Moldova’s new pro-Western government faces ‘crises’ amid Russia’s war in Ukraine’. Euronews notes ‘Serbian nationalists protest against Western plan to normalize ties with breakaway Kosovo’, the latter just marking 15 years of unilateral separation from Serbia, which still doesn’t recognise it. There are other similar headlines around the world.
However, one needs to look at key domestic trends too. In that light, our January 2019 report ‘The Age of Rage’ argued a wave of populism was about to sweep into ostensibly ‘apolitical’ institutions like central banks. Not long after, the Fed was talking about social justice as part of monetary policy. Looking back now, were such concerns part of the reason it lagged so badly in its rates response to inflation, even as radical fiscal policy became joined to radical monetary policy? Looking forward, you can see something different happening in politics and society that may be just as radical, if different....
....MUCH MORE
Rabo gives Mr Every a lot of leeway in what he looks at and in what he writes. A lot.
