“Oh yeah, how long is that going to last?” was my instant reaction on hearing of Kim Kardashian’s marriage to Kanye West. KK’s shameless self- promotion and hunger for media attention virtually sentences to death any attempt at a stable relationship.
“Oh yeah, how long is that going to last?” has also been my instant reaction to the slew of policy statements, reversals, competitive devaluations, rate cuts, projected rate hikes, official releases and unofficial media leaks, that seem to flood out from the Central Banking community with increasing regularity.
Central Banking at one time was a very disciplined pursuit, where policy rules were implemented with a high degree predictability. Under Greenspan, for instance, the Federal Reserve could be fairly counted upon to gradually raise or lower rates with the business cycle. Almost invariably, the Federal Reserve was “behind the curve”, which was a very good place to be, in that the market was accurately anticipating policy.
Not today. The GFC has changed all this to a point where the key to policy is judged by its shock value. The Swiss National Bank’s abandonment of its Euro peg, during mid-trading session no less, wins the prize for “shock value”. Monetary policy has become ineffective for a number of reasons, but this does not argue for actively courting policy uncertainty.
Central Bankers would do well to revisit the debate over rules versus discretion in the conduct of monetary policy.