The Waning Influence of the Federal Reserve (FT, Chris Giles) \ stacker news ~econ

Here's a neat one: Fed (=central banks) getting less important since 2022.

Fed running the show?

In 2023, however, a remarkable paper by Sebastian Hillenbrand of Harvard Business School set the cat among the pigeons when he showed that the movements in US long-term interest rates could not be divorced from the Federal Reserve.

That relationship basically ended in 2022. Markets no longer place that much faith in the Fed, its influence quite literally waning.

"Markets are no longer taking guidance from the Fed about low long-term interest rates. Instead, they have priced in significant term premia, representing their requirement for higher returns for holding long-term government debt"

The Fed controls rates via speaking to the market, by validating information so that market participants trust it:

Hillenbrand thought the Fed was probably acting as a conduit of wider information. But markets only absorbed information about trends when they were confirmed by the central bank around meeting dates. The Fed, therefore, provided 'long-run guidance'

archive: https://archive.fo/DP9aL

24 sats \ 0 replies \ @Undisciplined 4h

Interesting, so they might be pushing rope pretty soon.

0 sats \ 0 replies \ @Solomonsatoshi 22m

China has won the trade war. Dominance of the trade in real goods and commodities historically leads inevitably to dominance over the tertiary economic apparatus of banking and finance. It will take time but the USA is already clearly headed toward insolvency and cannot compete with Chinas deliberately strategic mercantile mixed model economy. Buy gold or Bitcoin and hope for the best. The days of western civilisation dominating globally may be almost over.