What’s really puzzling Claudio Borio, however, is that the market euphoria, or “ebullience” as he terms it, has continued as the Federal Reserve has proceeded with its tightening. While Borio acknowledges the BoJ has left its accommodative policy unchanged and the ECB may have “at least relative to expectations”, he notes that the Fed is the “issuer of the dominant international currency and its sway on markets remains unparalleled”. In Borio’s view this has led to a paradox, as he explained.
Hence a paradox. Even as the Fed has proceeded with its tightening, overall financial conditions have eased. For instance, a standard indicator of such conditions, which combines information from various asset classes, points to an overall easing regardless of the precise date at which the tightening is assumed to have started. Indeed, that indicator touched a 24-year low. If financial conditions are the main transmission channel for tighter policy, has policy, in effect, been tightened at all?
If you think you have it figured out, give Claudio Borio a call. 😃
BIS Issues Alert: Tightening “Paradoxically” Leading To Excessive Risk Taking; Reminds What Happened Last Time
Tyler Durden
See also
The New Arthurian Economics
24 years, Borio says. It's not a coincidence.
The Arthurian
2 comments:
Yeah, Tom. You got Claudio's number?
24 years, Borio says. It's not a coincidence.
Thanks, Art. I added it to the post.
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