Around the world, central banks that flooded the money with cheap funds for over a decade are in a rapid, uncomfortable and dramatic retreat.
Only twice previously in 40 years had a Reserve Bank of Australia governor made an unscheduled appearance on national television to discuss the economy.to defend his institution from slurs it was holding back rate rises to favour the then-Labor government. It was not until April 2010 that Glenn Stevens showed up on Seven’sRBA governor Phil Lowe made news when he gave his first impromptu TV interview earlier in the week.
The frenetic seven days of high drama was set in motion last Friday on Wall Street. Equity markets had been on the ropes all year as record high inflation – induced by government money and low-interest rates but exacerbated by war and disease – left the Federal Reserve behind the curve.as the US personal consumption expenditure index showed a moderation in price increases. The selling abated as traders sought to pick a turning point.
While Lowe was preparing for his interview on Tuesday morning, the Federal Reserve was also working behind the scenes to get its message out.’s economics writers have been dubbed “Fedwatch” as they’ve been used in the past by Fed chairmen to signal important moves. Although the rate remained in negative territory, it would now only charge banks a quarter of a percentage point, rather than 75 basis points for keeping their cash on deposit.There would be more, was the message from one of the more dovish central banks that for years had used negative rates to counter pressure on its currency.By Friday, however, the selling on Wall Street resumed as markets once again fretted about a recession.
Interest rate markets have responded to this week’s actions and may finally have reached the point where they have overestimated the extent of rate increases. After a chaotic week, markets expect the Fed funds rate to reach 3.8 per cent, by March next year and the Bank of England’s rate to peak at 3.4 per cent.