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It’s Central Bank week and a new book on the reading list

| July 25, 2023

Will central banks around the world surprise the markets? The quick answer is “very unlikely.” In fact, if you take the FED at their word from the last meeting, they have a couple more rate increases to go.

Here’s headlines from yesterday.

We have said their policy stance is just as foolish as it was in late 2021 when they kept interest rates at zero in a clearly overheating economy, as they said that inflation was “transitory.” We’ve talked about our interpretation of transitory and our feelings on what their policy decisions should be. But, of course, we don’t get a vote! The hard part about these central bank meetings around the globe is they all tend to come up with the same answer.  et’s see if some of the other central bank statements don’t sound similar to our own FED statements.

But before we get into the statements themselves, it’s important to define something. Groupthink. If you don’t know what groupthink is, here’s the definition from Wikipedia.

Apparently, this can happen across governing bodies as well. How can central bankers all sound alike? Must be the Kool-Aid they all drink.

Let’s take a look at last month’s comments from central bankers and then look into the future, as Canada has already shared the groupthink message this month.

Here is the statement from the Australian central bank. Tell me if this sounds familiar. I will highlight certain areas to make things easier.

Here’s the European Central Bank (ECB).

Next, here’s the last FED comments.

Now, a look into the future. We have already seen Canada announce their policy for the month of July.

So, the Bank of Canada raised rates by a quarter point. Any bets on what the US or ECB will do? I’m going to go with a quarter point increase. I feel like that’s a safe bet. Besides, I will refer you up to the definition of groupthink above. Do you think the central bank statements will sound familiar? I’m going to go with YES.

Here’s the one outlier. Japan.

With inflation now a global phenomenon, Japan has so far resisted the urge to raise central bank lending rates. Here’s what their inflation rate has looked like over the last year.

Ok, so not nearly as high as most of the rest of the world in terms of inflation, but for an economy that has been fighting deflation for much of the past 30 years, this is quite a change for them. Check out their inflation rate since the bust in the early 90s.

Here are their latest comments.

Now that sounds very different than the statements above. We shall see what their comments are this week when they discuss their updated central bank policy. At this point, a little “patience” from the rest of the world’s central bankers would be a welcome reprieve.

On a different note, a book I have been waiting to be written has finally come out. As you may know, I am a big fan of Neil Howe. In 1997 he wrote a book called ‘The Fourth Turning.’ Here is the description. Available on Amazon and Kindle (no I don’t get paid for this).

Now is the sequel to that book – ‘The Fourth Turning is Here.’

I can tell you that when I first read the book, the thought of 20+ years before the end of the fourth turning seemed unbelievable. And yet here we are. As hard as the fourth turning is and will be, it will be followed by better times. We will fix the major issues we have discussed in these blogs over the years so that the economy can work for more people. But it won’t be easy and may be more difficult for some than others. We will see how it all plays out.

I hope you have a great week and please let us know if you have any questions…


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