Interpreting what central bank bosses are saying is a dark art, made none the easier by the determination of the monetary bosses to avoid leaving any hostages to fortune. And so we are not a lot wiser after Fed chair Janet Yellen’s much-awaited speech at the annual gathering of central bankers in Wyoming.
The economists in Wall Street were, as economists so often are, divided on what Yellen meant when she said that the case for a rate increase had been “strengthened” by recent data.
Some felt that this upped the odds of an interest rate increase at the end of September, or by December at the latest. Others felt that the fact that Yellen did not specifically hint at September suggested that another rate increase might be delayed.
All this may suit the Fed quite well, as like the rest of us it is not in possession of a working crystal ball to foretell what will happen in the future. The next marker in this regard will be the August US jobs report, due for publication next Friday. As this will be a key piece of data, its publication is likely to attract more than the usual frenzied attention from market analysts. If the number is strong, the odds on a September rate rise will grow.
You can’t help but thinking, however, that despite the market speculation about when exactly the Fed will move, there is a deeper story here. It is that world central banks are being left to do a lot of heavy lifting and that the era of low interest looks likely to go on . . . and on. Remember that even if the Fed does move, it will only bring base interest rates to between 0.25 and 0.5 per cent.
Deutsche Bank boss John Cryan this week accused the ECB’s low interest rate policy this week of “squeezing the margins of Europe’s struggling banks, making it harder for insurers to find profitable investments and dangerously distorting financial market prices.”
There was more than a little self interest in Cryan’s comments – banks do not thrive when interest rates are low. But he is right too that these are not normal times. Low interest rates, which were meant to be temporary, are now looking at least semi-permanent.
