Today’s Fed and other model based central banks are, to my way of thinking, the ones that have more and more become “increasingly addled”. Their genetic makeup, like that of Delos Roman, seems to have been determined at origin and has since been centered on changes in the policy rate and the observation that higher short rates slow economic growth/temper inflation, and that low (or negative) interest rates do just the opposite. In recent weeks markets have witnessed Mario Draghi of the ECB speak to “no limit” to how low Euroland yields could be pushed – as if he were a two-time Texas Hold Em poker champion. In turn, Janet Yellen at the Fed, at least temporarily, halted their well-advertised tightening cycle at 25 basis points, followed a few days later by the BOJ’s Kuroda and a 5-4 committee vote to enter the black hole of negative interest rates much like the ECB and three other European central banks.
