A response to central bank press conferences
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“Fed Watch” is the macro podcast for Bitcoiners. In each episode, we discuss macroeconomic news from around the world, with a focus on central banks and currencies.
In this episode, Christian Keroles and I listen to and react to highlights from this month’s two central bank press conferences with Federal Reserve Chairman Jerome Powell and European Central Bank President Christine Lagarde. Central banks are one of the most misunderstood institutions in our modern world. Many analysts just tell you what the Fed or ECB thinks and what they are doing to disrupt the global economy, but on our show we like to give you primary sources from which you can start to forge your own informed opinion.
We stream most of our shows live on Bitcoin Magazine’s YouTube channel on Tuesdays at 3:00 PM EST. Mark your calendars!
Highlights and reactions from the Fed press conference
Powell’s comments were highlighted by a few accounts. These claims are simply what the Fed says it is doing:
- Their main concern is the fight against inflation.
- They will adapt to new data.
- A tight labor market threatens to exacerbate inflation.
- They cannot affect supply, so they will compress demand to drive down prices.
The primary measure guiding the course of Fed rate hikes is the CPI and “inflation” expectations. There are several ways to measure them, but the Fed uses consumer surveys. There is a key distinction between surveys and market-derived expectations, as surveys will not distinguish sources of price increases while market-derived measures will.
Below is the Fed’s inflation expectations survey. You can see that the median prediction is over 8%.
However, market-derived data, namely the 5- and 10-year breakevens and the 5-5-year forward, show inflation expectations around 2.5%. What explains this huge difference? This is because market-derived data measures real money printing, or in other words, real inflation. Survey data, on the other hand, measures generic price increases which are much more strongly affected by supply shocks; in this case, self-imposed supply shocks.
Highlights and reactions from the ECB press conference
We also listen to some excerpts from Lagarde’s press conference. Here we get a flavor for the ECB formative narratives:
- Inflation is the fault of COVID-19 and Vladimir Putin.
- Their board has skillfully formulated a journey to normality.
- They will start raising rates and tightening their balance sheets in July.
- They are dedicated to “anti-fragmentation”, or in other words, to avoid a European debt crisis 2.0 and to maintain the cohesion of the euro zone.
- They have almighty tools.
The ECB faces a different challenge than the Fed. The ECB needs to raise rates for some of the most indebted countries, already with growing anti-EU parties, and they face uneven effects, as can be seen with credit spreads in Italy for example.
That’s it for this week. Thank you to the spectators and listeners. If you like this content, subscribe, review and share!
This is a guest post by Ansel Lindner. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.