A Response To Central Banks’ Press Conferences

Both Jerome Powell and Christine Legarde held recent press conferences where they place blame for inflation on factors outside their control.

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“Fed Watch” is the macro podcast for Bitcoiners. In each episode we discuss current events in macro from across the globe, with an emphasis on central banks and currencies.

In this episode, Christian Keroles and I listen and react to highlights from this month’s two central bank press conferences with Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde. Central banks are one of the most misunderstood institutions in our modern world. Many analysts simply tell you what the Fed or the ECB thinks and what they do to disrupt the global economy, but on our show, we like to give you primary source material from which you can start to form your own educated opinion.

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Highlights And Reactions From The Fed Press Conference

Powell’s comments were highlighted by a few narratives. These claims are simply what the Fed says they are doing:

The main metric guiding the Fed’s course of rate hikes is CPI and “inflation” expectations. There are several ways to measure these, but the Fed uses consumer surveys. There is a critical distinction between surveys and market-derived expectations because surveys will not distinguish sources of price increases whereas the market-derived measures will.

Below is the Fed’s survey of inflation expectations. You can see that the median prediction is above 8%.

(Source)

However, the market-derived data, namely the 5-year and 10-year breakevens and the 5y-5y forward, are showing inflation expectations around 2.5%. What accounts for this huge difference? It is because the market-derived data is measuring actual money printing, or in other words, actual inflation. The survey data on the other hand is measuring generic price increases which are much more highly affected by supply shocks; in this case, self-imposed supply shocks.

5-year breakeven inflation rate
5-year, 5-year forward inflation expectations
Overnight reverse repo agreements

Highlights And Reactions From The ECB Press Conference

We also listen to a few clips of Lagarde’s press conference. Here we get a flavor for the ECB’s formative narratives:

The ECB faces a different challenge than the Fed. The ECB must raise rates for some of the more indebted countries, already with anti-European parties growing, and they are facing uneven effects, as we can see with credit spreads in Italy for example.

That does it for this week. Thanks to the watchers and listeners. If you enjoy this content please subscribe, review and share!

This is a guest post by Ansel Lindner. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

Originally published at https://bitcoinmagazine.com on June 24, 2022.

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We explore how markets evolve in this precarious time and enable our readers to survive and thrive. For more, please visit: https://btcm.co/.