Its a Wonderful Central Bank Life 2022 Edition
This is an extraction and update from a piece we wrote a few years back and have adapted as our yearly monetary lesson. Every year it seems Magnelibra Econemotions is proven correct in its ongoing thesis that the only important news driving the markets or shall we say that the “only game that matters” is how much liquidity central banks are adding or in this year’s case, SUBTRACTING and for all of 2022 its been extraction time and a time for “Regime Change!”
Over the last two decades we have seen massive central bank monetary printing and manipulation and this year the zero rate regime, plus the Trillions in post covid balance sheet expansion, plus trillions in direct stimulus payments has allowed real inflation to finally rear its ugly head. We want to make this very clear, we do not expect inflation to last, in fact we expect a cratering of pricing and subsequent narrowing of margins in 2023 as the global economies struggle with rate hikes, waning demand and a consumer that prefers savings over spending.
This year the FED decided enough was enough and put the rate hike pedal to the metal and drove rates up by 425bp so far, the fastest and most steep rise in the Federal Funds rate ever! (chart shows 3.75% but after DEC hike FFunds is 4.25-4.50 range)
