It would be easy to draw parallels between now and the financial crisis in 2007-08, but frankly it doesn't feel that way to me. Even with oil prices spiking now like they did back then; even with markets acting glitchy; even with the housing market showing signs of turning over. That period felt more like a house of cards that was about to collapse. The housing bubble, remember, had come out of nowhere, and no one could really explain why it was happening. This is not that.
So yes, it's getting a little glitchy out there. Liquidity is trying to figure out where it wants to go, and whether it even wants to be there at all. I think some plain talk from the Fed tomorrow would go a long way. Chair Powell--lay it all out.whatever it is, spell it out for us. Tell markets. They love a plan. Then they can trade it accordingly. Liquidity can make a comeback.
It still won't be easy. On top of everything our Fed has to deal with, Europe is already risking a rerun of its debt crisis by pulling back on debt purchases of weaker peripheral countries as part of its need to pivot to tightening in order to fight inflation. Italian 10-year bond yields have surged from 0.
Point being, by letting inflation break out to this extent, global policymakers have now boxed themselves in. They can no longer ignore inflationary risks in order to deal with other crises that might require their monetary support. Inflation itself has become the crisis of the first order, to which all other efforts must now be subjugated. That is what's most different this time.
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