Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Treasury, Currency Traders Can Do Well Without Forward Guidance

Courtesy of ZeroHedge View original post here.

By Ven Ram, Bloomberg macro commentator and reporter

Policy makers in a much-overlooked corner of the world made a bold and telling statement on Thursday: the Swedish central bank raised interest rates, sparking optimism about the krona. In itself, that doesn’t sound like a big deal. But there is more to the increase than meets the eye. While a hike was eventually expected, the timing of it was a surprise. 

For, just at the previous meeting in February, the central bank had offered this guidance:

The forecast for the repo rate indicates that it will be raised in the second half of 2024, which is slightly earlier than in the assessment in November.

From there, the central bank opted straight to raise rates yesterday.

So much for policy guidance — though I mean it as a compliment.

For, after its February guidance, the inflation outlook had become pretty skewed that warranted a change of heart — and a prompt response.

Forward guidance isn’t all that virtuous as it is touted to be. Policy makers need to act when they need to, and promptly at that. There is little point in preparing the markets well ahead of time and hand-holding them all the way before central banks can act. (And the point is that the markets don’t really need it in any case, thank you. A case in point: money markets had been pricing in a significant degree of tightening in Sweden even before the central bank’s February statement that was dovish.)

I find the idea that central banks must wear their hearts on their sleeve ahead of a policy meeting a fundamentally repugnant concept.

For if the Fed has to prepare the markets for what it is going to do well ahead of time — as it has been doing for some time now (witness the chorus of Fed voices that have blessed a 50-basis point increase in May), then it should rightfully be called monetary-policy choreography rather than a policy review.

More importantly, such orchestration introduces a lag before a central bank can act, which is unacceptable when inflation is raging as hot as it is now. Fire engines need to get on with what they need to do when they need to do it, not after the forests have been burnt down. So if the Fed has to come out and raise rates in an emergency policy meeting, the markets will learn pretty quickly about risks embedded in their pricing and be well prepared for such shifts.

The markets are a lot smarter than the central banks would have us believe. So policy makers just need to get on with it.


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!