THE several decades through the start of the pandemic had their share of hairy moments, but they have retrospectively acquired a reputation for tranquility.
The era largely characterised by contained inflation and relatively small swings in growth – interrupted by the subprime meltdown – has given way to a period of discomfort.
Officials seem to be spending almost as much energy trying to define the times as adjusting policy to live with them.
Investors need to brace themselves for surprises.
Bank of France chief François Villeroy de Galhau has sketched this new period with some catchy prose.
In contrast to the so-called Great Moderation, today’s vibe is akin to a Great Volatility, he said late last year.
He previously declared that policymakers had left a “Garden of Eden.”
Bank of Japan (BoJ) deputy governor Ryozo Himino did some searching of his own.
In a speech last week, he said the new phase could be dubbed the Great Wave.
Himino, who nodded to de Galhau’s work before invoking renowned artist Katsushika Hokusai, used his remarks to a conference of regional lenders to lay the ground for a possible interest-rate increase.
That came as a surprise; in December, BoJ officials had suggested a go-slow approach.
By rapidly recalibrating expectations, Himino illustrated his point: Central bankers may resemble fishermen tossed by waves, at the mercy of the elements.
The message is that what we considered to be the certainties of the past may be gone.
This isn’t just a Group of Seven problem, though the most powerful central banks are trying to navigate some choppy waters.
The surprising resilience of the US economy, the very strong dollar and, of course, Donald Trump, are just a few of them.
A small but noisy constituency on Wall Street is betting that not only does the Federal Reserve (Fed) shelve rate cuts projected for this year, but actually lifts rates.
Two decisions in Asia last week whipsawed investors.
In each case, policymakers had fairly compelling justifications for their surprising judgments – and also reasons to do the opposite.
There were competing claims on their attention.
In Indonesia, where officials spent the past two months telling anyone who would listen that their priority was currency stability, the bank unexpectedly lowered its main rate.
Bank Indonesia (BI) has been intervening heavily in the foreign-exchange and bond markets to shore up rupiah-denominated assets.
Reducing borrowing costs would tend to weaken the rupiah.
Just as jarring was a commentary from BI that it was striking out in a new direction and emphasising growth.
In South Korea, where a protracted standoff between the impeached president and the Parliament has both weighed on the won and sapped growth, authorities were expected to loosen policy.
But instead they left rates unchanged.
Yes, the won has been under pressure. But a sharp rise in unemployment – a full percentage point – argued in favour of juicing the economy.
This is especially given the surprise reduction in November.
If they can trim when the economy is so-so, why not when it’s clearly ailing?
But the Bank of Korea bucked expectations for a cut, while leaving the door open to doing so in coming months.
You would be forgiven for thinking policy was all over the place.
And also suggestive of the famous Japanese painting.
“Hokusai’s work depicts small human beings facing the great force of nature, our ancestors enduring rough seas together on a small boat being toyed with by the waves,” Himino told bankers.
“I do not know what kind of era awaits, but even if it is the era of the Great Wave, I hope we can stand firm together.”
He’s being a tad fatalistic.
Central banks have accrued enormous power and it’s incumbent upon them to communicate a policy approach beyond cute anecdotes.
As for volatility, it’s also worth noting that the three decades fondly recalled for their surety had moments of acute pain.
While the United States and Western Europe enjoyed strong growth in the late 1990s with inflation under wraps, large emerging markets endured a wrenching series of crises in the late 1990s.
Japan struggled with deflation. The good old days weren’t always great.
The current generation of officials do have to contend with a lopsided global economy, supply-chain shocks and climate change.
This is in addition to striving for price stability and decent growth.
Quite the cocktail when they are expected to be more transparent than ever about their intentions, a byproduct of the enhanced communication adopted as a policy tool during more straightforward times.
The sense of omnipotence that central bankers projected during the Greenspan era – the former Fed chair himself was nicknamed “Maestro” – seems to have deserted some of his successors.
That’s probably a healthy thing. — Bloomberg
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. The views expressed here are the writer’s own.
