REUZ on Nostr: Couldnt explain my thoughts better than this: ...

Couldnt explain my thoughts better than this:

quoting nevent1q…f2ed

It’s understanding money Sunday once again. In the Dutch financial times a nice article was posted yesterday evening. A translation in English:

“Modesty is in order for central banks
20 Sep 20:00

Market participants were already hoping for it, and the Federal Reserve gave it to them on Wednesday. The American system of central banks lowered the interest rate by a large step of 50 basis points. According to Fed chairman Jerome Powell, the American economy is solid, the labor market looks good and the substantial interest rate cut 'is intended to keep it that way'.
It turned out to be a difficult message to explain. After all, isn't a smaller interest rate cut of 25 basis points more appropriate if the economy is doing well, the labor market is not doing much yet and inflation is a bit too high? Do policymakers have more concerns than they say? Or is the large interest rate step an acknowledgement that the interest rate should have been lowered in July?
In any case, the credibility that the next steps will be cautious and smaller has been partly undermined, now that the Fed immediately took the big step that market participants and commentators were calling for. Try to get the genie back in the bottle. Every time an economic figure disappoints, speculation about the next major interest rate cut will flare up.
The Fed is thus cornering itself in a corner where it – or other central banks – should not be. Sentiment on the financial markets is back to business as usual after the corona pandemic and the inflation shock of 2021-2023. If the economy deteriorates somewhat, the central bank must quickly lower interest rates and, if necessary, inflate the balance sheet to support the economy (i.e. the markets).
Where investors want to quickly return to the old situation, central banks should be more modest. So far, they have washed their hands of their own role in the inflation shock. According to central bankers, it was due to disruptions on the supply side (corona, Ukraine). Furthermore, the extent to which the inflation wave has been exacerbated by fifteen years of extremely loose monetary policy is mainly dismissed.
That question is indeed relevant. The effects of the inflated policy are still seeping through the economy. The run-up in asset prices and inflation has contributed to poverty and growing wealth inequality. And liquidity is still sloshing around – albeit slightly less so. It is telling that the sharp rate hikes of 2022 and 2023 did not cause a recession, despite the energy crisis. That is both nice and strange. The effects of old policies and structural economic changes make it unpredictable how inflation and the economy will develop if interest rates fall sharply.
In such an uncertain environment, restraint is appropriate. Of course, interest rates can be lowered if the situation requires it and if it is done cautiously. That message is often preached, but the Fed’s 50 basis point cut and the ECB’s routine rate steps really send a different message.