The Blog

When Hesitation Gets In The Way.

Posted on July 21, 2016

When Hesitation Gets In The Way.

Posted on July 21, 2016

The governor of the Bank of England, Mark Carney and the Chairwomen of the Federal Reserve, Janet Yellen have yet to take a stand on their interest rate policies. As I, and maybe you too, have seen, both figures have been beating around the bush given their inability to take the lead on their expected interest rates maneuvers.  The fact that the Bank of England has acted as timid and hesitant on cutting its interest rates this July as The Fed’s similar hesitations via the last 18 months made me think, 'When will either of these two do the unpopular and responsible thing— rip the Band-Aid off and get on with it?'
 
Mark Carney’s paraphrase from an article on the matter:
“But Carney has also suggested he does not favour a sharp cut in borrowing costs because of the possible impact on banks based in Britain, and he has said he did not want to follow the example of the European Central Bank and the Bank of Japan by cutting rates below zero.”1
 
I like the Japanese and Chinese way of doing things: unannounced and shockingly quick. The Chinese of late have depreciated their currency2 just as the Japanese has cut their rates with similar velocity.3 
 
When will we see the days of the West slicing and dicing like ol' Volcker did?4&5 Everyone disliked him for allowing interest rates to soar with a short-term recession ensuing.  Yet, not too many applauded him nor gave him credit for creating the necessary means for a sustainable 20 year bull market.
 
Do you share my view or contest it?
 
Jos. G. Sellery
 
Sources:
1http://www.thestar.com.my/business/business-news/2016/07/15/boe-surprises-markets-by-keeping-rates-on-hold/
2http://money.cnn.com/2015/08/11/investing/china-pboc-yuan-devalue-currency/
3http://www.reuters.com/article/us-japan-economy-boj-decision-idUSKCN0V70A7
4http://www.federalreservehistory.org/Events/DetailView/41
5https://www.bloomberg.com/view/articles/2012-08-20/how-volcker-launched-his-attack-on-inflation

5(William L. Silber is Marcus Nadler professor of finance and economics and director of the L. Glucksman Institute for Research in Securities Markets at New York University’s Stern School of Business. This is the first of three excerpts from his new book, “Volcker: The Triumph of Persistence,” which will be published Sept. 4 by Bloomsbury Press, and is on the long list for the 2012 Financial Times and Goldman Sachs Business Book of the Year Award. The opinions expressed are his own. Read Part 2 and Part 3.)