Merrill analyser effekten af det deflations-chock, der er opstået i kølvandet på coronakrisen. Men deflationen skyldes også, at centralbankerne ikke nåede deres inflationsmål i seneste to årtier. Det er problemet hos både Fed og ECB. Det er nødvendigt, at centralbankerne styrker pengeforsyningen for at få en inflation i nærheden af to pct., men det tror markedet ikke på, mener Merrill.
Uddrag fra Merrill:
Stopping Deflation
The lockdown of national economies has caused a major deflationary shock (Exhibit 1). This has started to show through in plunging oil and commodity prices. Broader price measures, like the “core” personal consumption expenditure (PCE) measure of consumer prices, went negative in March. Price measures were already weak before the pandemic hit as the Federal Reserve’s (Fed’s) aggressive tightening in 2017 and 2018 stopped inflation short of the target and caused it to decline from the middle of 2018.
This was just the latest example of major central banks failing to provide sufficient accommodation to hit their inflation targets and help maintain a healthy nominal growth environment. Indeed, inflation has persistently fallen short of central-bank objectives for two decades.
In Europe and Japan, this has caused long-term inflation expectations to drop well below
the 2% target that central banks have set, illustrating their lack of market credibility.
The Fed has come closer to hitting its target, and long-term market-based inflation
expectations were anchored closer to the 2% target, though still below. The deflationary
shock from the pandemic changed that. Market-based inflation expectations have come
unanchored, causing U.S. long-term interest rates to join those of Europe and Japan near
zero.
Basically, the market no longer believes that the Fed is going to hit its inflation
target or even come close. This “Japanification” of U.S. inflation and interest rates is
the inevitable result of two decades of policy failure to demonstrate that the Fed could
achieve its only long-term objective.
After the policy mistakes of 2017–2018, the Fed began to acknowledge this failure to
hit its inflation objective in a sustainable way. This prompted a reevaluation of monetary
policy operating procedures that was kicked off in November 2018 and was slated to be
completed by the middle of this year. The pandemic has pushed this major revamp to the
backburner of recent Fed communications, as the focus has shifted to prevent another
Great Depression.
Nevertheless, as shown in Exhibit 1, the pandemic has magnified the growing gap
between the Fed’s 2% inflation objective and the reality of deflation as reflected in
collapsing inflation expectations. The impact of the pandemic makes it even more
imperative that the Fed recapture some of its long-lost credibility on the inflation front.
This is even more true for the European Central Bank (ECB) and the Bank of Japan (BOJ),
as inflation expectations there were already well below supposed inflation targets.
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The key point is that increasing money growth sufficiently can always bring inflation up
to the desired level. The pandemic caused a massive “dash for cash.” The Fed has
accommodated this sharp rise in liquidity preference. It needs to make sure that the
money supply grows sufficiently in the future to move inflation expectations back close
to the 2% target. Right now, in our opinion, the market does not believe it will.
