Why ‘higher for longer’ rates demand explanation from central banks
The post Why ‘higher for longer’ rates demand explanation from central banks appeared on BitcoinEthereumNews.com. The whispers in the financial corridors suggest a change in tactics by central banks. The whispers aren’t of skyrocketing rates, but the anticipation of them plateauing, maintaining their elevated status for perhaps a more extended period than many had projected. If central banks desire the financial world to rally behind this “long-term hold” approach, a robust explanation must back it. Flimsy forward guidance won’t suffice in anchoring the rate expectations. The Real Impact of Policy Rates Dive into the nitty-gritty, and it’s evident the policy rate isn’t the Herculean tool many perceive it to be. A standard quarter-point alteration barely causes a ripple in the inflation pool. If rates are to stand unyielding for a year or even more, it suggests a forecast of uneventful economic conditions. However, recent volatility makes such a prolonged calm seem improbable. Remember, it took a staggering inflation upswing to advocate the current rate elevations. If these rates are to remain stagnant, the drop in inflation needs to be at an almost snail-paced rate. Yet, recent trends show a significant cooling in monthly price change rates. It’s a common understanding that monetary policies aren’t flip-floppers. Quick reversals aren’t the norm, meaning, a rate cut usually stands firm before subsequent ones. Hence, investors might reconcile with a prolonged hold, but once the dam breaks, a succession of cuts might follow. Forget likening this to the ‘higher for longer’ strategy central banks employed in the past. Back then, despite tepid inflation expectations, rates lay at rock bottom because additional stimulation through negative rates or more asset acquisitions was deemed more costly than beneficial. We were looking at a situation bound by an effective lower limit. Today’s scenario, without an upper limit, doesn’t fit that mold. The more substantial possibility hints at policymakers overshooting their goals. The current…
The post Why ‘higher for longer’ rates demand explanation from central banks appeared on BitcoinEthereumNews.com.
The whispers in the financial corridors suggest a change in tactics by central banks. The whispers aren’t of skyrocketing rates, but the anticipation of them plateauing, maintaining their elevated status for perhaps a more extended period than many had projected. If central banks desire the financial world to rally behind this “long-term hold” approach, a robust explanation must back it. Flimsy forward guidance won’t suffice in anchoring the rate expectations. The Real Impact of Policy Rates Dive into the nitty-gritty, and it’s evident the policy rate isn’t the Herculean tool many perceive it to be. A standard quarter-point alteration barely causes a ripple in the inflation pool. If rates are to stand unyielding for a year or even more, it suggests a forecast of uneventful economic conditions. However, recent volatility makes such a prolonged calm seem improbable. Remember, it took a staggering inflation upswing to advocate the current rate elevations. If these rates are to remain stagnant, the drop in inflation needs to be at an almost snail-paced rate. Yet, recent trends show a significant cooling in monthly price change rates. It’s a common understanding that monetary policies aren’t flip-floppers. Quick reversals aren’t the norm, meaning, a rate cut usually stands firm before subsequent ones. Hence, investors might reconcile with a prolonged hold, but once the dam breaks, a succession of cuts might follow. Forget likening this to the ‘higher for longer’ strategy central banks employed in the past. Back then, despite tepid inflation expectations, rates lay at rock bottom because additional stimulation through negative rates or more asset acquisitions was deemed more costly than beneficial. We were looking at a situation bound by an effective lower limit. Today’s scenario, without an upper limit, doesn’t fit that mold. The more substantial possibility hints at policymakers overshooting their goals. The current…
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