UN & IMF gave warning but has policy pivoted?
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UN and IMF have given rare warnings regarding potential fiscal and monetary policy shocks to the global economy.
The late warning
The world is headed towards a global recession and prolonged stagnation unless we quickly change the current policy course of monetary and fiscal tightening in advanced economies.
Supply-side shocks, waning consumer and investor confidence and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures.
All regions will be affected, but alarm bells are ringing most for developing countries, many of which are edging closer to debt default.
Climate stress is intensifying, with mounting loss and damage in vulnerable countries that lack the fiscal space to deal with disasters, let alone invest in their own long-term development.
The fed has a very high responsibility to consider the impact on the rest of the world.
Facing a mutiny of Conservative Party lawmakers, Prime Minister Liz Truss of Britain on Monday reversed plans to abolish the top income tax rate of 45 percent on high earners, a humiliating about-face that leaves her supply-side economic agenda in tatters and her grip on power uncertain.
One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia responds to the tighter financial conditions. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments. Consumer confidence has also fallen and housing prices are declining after the earlier large
Cooling global demand and steady improvements in supply should result in falling rates of inflation for goods over the next year, New York Fed President John Williams said Monday. “These factors should contribute to inflation declining to about 3% next year,”
Has the policy pivoted
The world is still dependent on US dollars and federal reserve policies. Even though some of the other central banks have started to be less hawkish on rate hikes, the ultimate decision still lies with the Fed. The policy will only be regarded as pivoting if the federal reserve clearly expresses the pivoting stance. The Federal Reserve can easily do so if it wishes. However, given the current PCE numbers and other economic metrics, it is unlikely for the fed to announce a clear pivot message even if they wanted to.
The reverting of the UK policy at best reset the policy landscape back to the end of September without considering the damage that has been done to the market and the loss of credibility for BoE and related policymakers.
What does it mean for the market under the current circumstance
2022 October 3rd EST Daily Memorandum: Impacted by policy changes
1. UN asked all central banks to halt rate hikes
2. UK tax cut U-turns
3. Fed announcement indicating the interest rate hike starts to see results
the credit market adjustment has deepened, which may return to the prior memo 2022 September 28th EST Daily Memorandum set up on credit market for the short term. On October 3rd, the market experienced a pullback on the minute to 4-hour charts as indicated by the memo on September 30th. With the August US higher than expected PCE and the EU sliding into recession on PMI numbers, how the market reacts to the unclear policy message may still take time to materialize.
As long as the US dollar continues to be the world reserve currency, the ultimate decision still depends on Fed. We are far from out of the woods and the equity market is still very bearish on the weekly and monthly, we can only treat the current as ST temporary relief rallies.
Nothing contained in the proceeding content constitutes an offer, solicitation, or recommendation regarding any investment management product or service, or the offer to sell or the solicitation of an offer to buy any security; The above content is purely for information only and is based on information available at the time it was created. It does not take your financial situation or goals into consideration, and may not be suited for you.