Central Bank's Lacking Firepower

Macro Perspectives

We have four major central bank decisions over the next 48 hours:

• The Fed (19:00 BST) will continue to move the anchor on global interest rates, which is expected to raise rates by 75 basis points.

• The Swiss National Bank (08:30 BST) is expected to follow with 75 basis points on Thursday morning-that would end seven years of negative interest rates in Switzerland.

• The Bank of England (12:00 BST) is expected to hike 50 bps on Thursday morning.

With that, let's revisit the snapshot of major global central bank rates (adjusted for the expected hikes coming this week) vs. current inflation.

Almost every major financial publication in recent weeks has invoked the Paul Volcker analogue. We've discussed that narrative here many times. Volcker beat inflation in the early 80s by taking short-term rates above the rate of inflation. As you can see in the table above, even after a series of "aggressive" hikes, we are not even close.

We've additionally discussed how global central banks in this post-Great Financial Crisis and post-Pandemic era don't have the firepower to take down inflation with high interest rates.

Among the reasons: government debt levels (globally) are incompatible with high interest rates.