Monday, 29 July 2019

From the Vasty Deep

GLENDOWER: I can call spirits from the vasty deep.
HOTSPUR: Why, so can I, or so can any man - but will they come…?

Such has been the dilemma faced by the central banking community, increasingly so: policy officials have the same apparent ability as Shakespeare’s Glendower (based on one Owain Glyndŵr, the last native Welshman to hold the title of “Prince of Wales”), yet the characteristic response from markets has been just as capricious as Hotspur’s retort suggests: just because you say it's easing doesn't necessarily make it so...

Fiat policy is successful not by virtue of the exhortation, but by manifestation of that which has been prescribed. It’s one thing to say you’re easing, quite another to convince markets of it.

Owen Glyndŵr of Wales, Fiat Policy Pioneer
The difference, perhaps, is that while the character in Henry IV seems to have genuinely “believ’d the magic wonders which he sang”, central bankers should be more acutely aware of the wide gulf between saying & doing. Indeed, the pragmatic response has been to join edict with act to the point that we now have policy prescription written in no uncertain terms (“yield curve control”). 

On the threshold now of the first rate cut by the Federal Reserve since 2008, this question has to be even more vexing for those about to do the cutting. At this point, is a 25bp cut alone enough to “ease”? The simple answer is no.