There’s a strong sense of reaching a turning point after what has been a tumultuous few years for global monetary decision makers.
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Thomas Jordan, Swiss National Bank’s chairman. The central bank delivered a surprise 25-basis-point rate cut. Bond investors have suffered trillions of dollars of paper losses on their investments, as their bets that long-term interest rates would stay ultra-low soured. As at the end of 2020, a record $US18 trillion of bonds were trading at negative yields. The global end of the era of negative rates slammed shut this week when the Bank of Japan, which has been battling deflation for decades,for the first time since 2007. The bank’s new short-term interest rate target is between zero and 0.1 per cent.
He added that because the Bank of Japan had lagged other major central banks, this week’s move wasn’t a guide for what other central banks will do. As a result, he says, “the Fed is more explicit in signalling the return from a tight monetary policy to a more normal interest rate setting”.. At its meeting this week, the RBA removed its tightening bias and shifted to a more neutral stance”.Their previous experience in misjudging inflation means that central bankers will be cautious about declaring victory too early. Especially since inflation remains sticky, which suggests that price pressures haven’t been completely stamped out.
And that leaves central banks with the tricky question of timing. If they cut rates too early, inflationary pressures could bubble up again. But if they wait too long, they could cause economic activity to sputter, and push the jobless rate higher. So, is it possible that interest rates could ever fall back to the ultra-low levels that prevailed in the pre-COVID 19 era?
AMP’s Oliver points out that “tight labour markets are a global phenomenon, and you have to question the extent to which there’s a reaction to the worker shortage in the post-pandemic period.
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