Headline: Fed and ECB: Different Pause, Same Core Philosophy
Lead: The Federal Reserve (Fed) and the European Central Bank (ECB) may appear to be taking different paths when it comes to interest rates, with the ECB signaling more rate hikes while the Fed has paused and could potentially lower rates. However, a closer look reveals that at their core, these central banks are not so different after all.
In a recent analysis, it becomes evident that central banks across the globe, including the Bank of China, Bank of Japan, Bank of Canada, and Reserve Bank of Australia, share a key similarity – they all exercise their monetary policies according to their own desires and then come up with excuses for their actions.
The common thread is that the ECB wants to hike rates, so it does, while the Fed has decided to pause for now. This decision-making process has little to do with following the available data, as evidenced by the Fed’s quantitative easing (QE) approach.
The Fed’s QE program, which ended on March 9th, 2022, continued even as inflation soared. This raises questions about the Fed’s supposed data dependency. Despite inflation reaching a staggering 8.3 percent on a year-over-year basis, the Fed kept creating justifications for its actions, indicating that it was not truly driven by the available data. Instead, the Fed focused on compensating for historical inflation levels, resulting in the intentional allowance of inflation to run hot.
One might occasionally observe the Fed seemingly aligning its policy with the data, but often, this alignment is the result of a significant policy error that has already occurred. The same understanding applies to the 2008 Great Recession, and it sheds light on the current situation.
One glaring issue faced by central banks worldwide is their lack of understanding when it comes to inflation. Not one of these institutions comprehends the significance of asset bubbles, which are the primary drivers of devastating deflationary crashes.
For instance, despite the Fed’s efforts to control inflation, housing prices and asset bubbles continue to surge. This demonstrates that the central bank’s attempts have not been successful in curbing inflation. It is clear that these central banks focus on defeating routine consumer price deflation, which leads to the accumulation of unproductive debt and asset bubbles that eventually collapse.
By undermining routine price deflation, these central banks mistakenly fuel destructive asset bubble deflation, which presents significant risks to the financial system.
Despite claims of aligning with current demands, the Fed’s track record suggests otherwise. Fed policies, as exemplified by former Fed Chair Ben Bernanke’s actions during the Great Recession, demonstrate a deep misunderstanding of what the moment truly requires. If the Fed is indeed addressing the needs of the economy, it appears to be mere luck rather than calculated and informed decision-making.
In conclusion, the Fed and ECB may differ on their current interest rate strategies, but their core philosophy remains the same – a focus on their own objectives, with varying degrees of success in aligning with economic data and understanding inflation risks.
Note: This article has been compiled based on analysis and opinions and aims to provide a comprehensive overview of the central banks’ decision-making processes. The views expressed in the article are those of the respective experts and do not necessarily reflect those of our news agency.
