The ECB is signaling more rate hikes. The Fed has paused and the next move appears to be lower. But does that make the Fed and ECB different? 
Are the Fed and ECB Different?
This may surprise you, but the Fed and ECB are no different. Pause now, top see if you can come up with an explanation of how and why that is so.
Meanwhile, you can add the Bank of China, Bank of Japan, Bank of Canada, and Reserve Bank of Australia to the statement and the answer does not change.
The Key Framework
Every central bank in the world has one thing in common: They all do what they want and make excuses for it.
At the moment, the ECB wants to hike, so it will. Right now the Fed wants to pause so it will.
None of this has a damn thing to do with following the data. A look at QE evidence alone proves as much.
Fed’s QE
On March 9th, 2022 the Fed completed its final open market purchase effectively ending the Covid QE 4 program that started in March 2020.
If the Fed was data dependent, it would not have kept QE going with inflation roaring.
At the time the Fed ended QE, year-over-year inflation was up a massive 8.3 percent. The Fed kept making excuse after excuse for it.
Three Unshakable Fed Beliefs
- It’s transitory, stupid!
- We need to make up for lack of prior inflation.
- Inflation expectations are well anchored.
Illusion of Data Dependence
The Fed is not data dependent. It had its mind firmly entrenched in the idea that it needed to make up for the lack of prior inflation. To do so, it purposely let inflation run hot until that blew up in the Fed’s face.
If Fed policy matches the data, it’s happenstance. If the framework seems to makes sense, that’s happenstance as well.
At any given time, perhaps even most of the time, the Fed may appear to be following the data. But any framework to follow the data typically only happens after the has made a huge policy error somewhere along the line.
That is precisely how the Great Recession happened and it fully explains where we are right now.
No Understanding of Inflation
A big problem for all the central bankers is not a single one of them has any idea what inflation is. They all ignore asset bubbles as if they don’t matter.
Ironically, asset bubbles are the one thing that matters the most. Deflationary crashes inevitably happen from asset bubbles.
How the Fed Destroyed the Housing Market and Created Inflation in Pictures
Despite the Fed attempting to get inflation under control. It’s still roaring if one looks at asset bubbles and housing prices.
For Discussion, please see How the Fed Destroyed the Housing Market and Created Inflation in Pictures
The Problem is Not Deflation, It’s Attempts to Prevent It
On May 5, 2020, I wrote The Problem is Not Deflation, It’s Attempts to Prevent It
The Fed sure prevented deflation, at least for now. But we may easily see another bout of crippling asset deflation yet.
BIS Deflation Study
The BIS did a historical study and found routine price deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations
Asset Bubble Deflation
It’s asset bubble deflation, not routine CPI deflation that is damaging.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive build up of unproductive debt and asset bubbles that eventually collapse.
“What the Moment Demands”
Finally, my hoot of the day on November 18, 2023 was San Francisco Fed President Sings Praises of Ben Bernanke “What the Moment Demands”
Please give that a look. I go over the Fed Uncertainty Principle and numerous flashbacks to the idiotic policies of former Fed Chair Ben Bernanke that led to the Great Recession.
The Fed is clueless about “What the moment demands”. If they are actually doing what’s needed, it’s nothing more than dumb luck.
Whatever …..I hope CB gangsters learned one thing at least : rates should NEVER go below a healthy 4%, NEVER !!
These currency cartels permitted by governments actually rule them via bribery and corruption.
Powell has held the means-of-payment money supply constant for the last 19 months. That’s real progress. The problem has been the demand for money. The composition of the money stock has changed.
The spike in inflation is textbook. See: “Quantity Leads and Velocity Follows” Cit. Dying of Money -By Jens O. Parson
Large CDs have fallen for the first time on a SA basis.
“Powell has held the means-of-payment money supply constant for the last 19 months. That’s real progress.”
Not when he doubled it in the year prior. And everyone knows he’ll double it again next year…
Then, all they’ll do, is wait him out.
Holding the means-of-payment money supply constant “since the founding of the US, and forever going forward” is what counts. That’s the only way actors will made decisions according to economic realities; hence contributing to real growth; rather than according to “what will The Fed do.”
Furthermore: Once the “means-of-payment money supply” is as far out of whack, referenced to the US’ founding, as it was 19 months ago; shrinking it back is what’s progress. Gold at $20/oz and full convertibility. Not just a temporary pause before the debasement theft is restarted, full force, again.
The ECB has to hike rates because they need to attract capital to continue to fund their massive debt … they are in a zombie situation … things are gonna get a lot worse in Europe soon …
As for the fed, we should not let appearances fool us … the Fed really wants to continue hiking rates, but they’re afraid they’ll crash the economy and start a regional banking crisis … so they’re caught in a catch 22. They will more likely keep rates where they are for the now … because they really have no idea what to do …
Well, they probably are the same in that they’ll do what they want. But I don’t necessarily agree with your opinion on why the Fed is doing what it’s doing (i.e. – fighting inflation). Tom Luongo of Gold Goats and Guns is of the opinion that the Fed is basically fighting against Europe in a way (and it seems to be working) so it can control the Eurodollar market, etc. It gets more complicated than I’m able to describe, but trying to follow his analysis, it seems to be working (hence breaking a few US crypto-related banks earlier this year and making royal trouble (pun intended) for the Bank of England as well). Just a thought, I’m not an insider (and neither is Luongo) so I can’t say for sure what they’re really doing.
How are they the same? Both corrupt organizations should be RICO’d and stripped of their assests… if they have any.
It may be outdated, but the ECB kept all reserves with their Reserve bank. They didn’t allow vault cash to count towards reserve requirements. They don’t remunerate IBDDs either. Banks still carry excess reserve balances.
ALL central banks FOLLOw their country’s bond market. Rates in the bond market move first, and THEN central banks change rates. Only on a rare instance does a central bank change rates and then bond markets follow.
We just came through a period of low interest cause the Feds lowered their rate to zero. They have raised it and bonds did too. So you are wrong.
If we were really data dependent the Fed would be the central bank for everyone east of the Mississippi. West wouldn’t have a central bank and we could actually use science to see what works by having a control group and an experiment group. This would work for hundreds of other policies.
The San Francisco bank is not really a central bank.
It is a dormitory for idiots with a misleading sign outside.
SPX and the Dow 1M flipped down in Oct 2023. Madam Lagarde likes higher rates so much she asked for more ==> She might get negative rates instead.