Sociologist Gérald Bronner has called this feverishness the “Aesop effect”, a source of errors of perception, provoking a rumor that generates even more feverishness. The past few weeks are a good illustration of this on the markets. Between the messages from central banks, more or less feverish, the dependence on data, one could exclaim: forward guidance is dead, long live data dependence! The central banks had warned us: they navigate on sight, particularly in their forecasts of inflation figures, which forces them to abandon the sacrosanct forward guidance (indication on the monetary policy to come in order to "guide" the expectations of the investors) in favor of a more data-dependent approach (rapid adjustment of monetary policy according to new macroeconomic publications).
This new approach, in addition to making monetary policy difficult to read in the short term, above all forces central bankers to change gear fairly regularly, at the risk of losing their minds in just a few months. So, just a month after claiming that 75 bps rate hikes were not “actively considered”, Jerome Powell formalized a hike of … 75 bps (the biggest hike since 1994) at the last policy meeting. monetary policy in reaction to the poor inflation figure for May. With this decision, globally expected by the markets, the Fed is seeking to regain credibility in its ability to fight inflation. Although the Fed Chairman indicated that this increase was not a new norm, such a movement is still expected for the next meeting in July. The Fed is now showing its intention to set Fed Funds at 3.40% by the end of the year (compared to 1.9% in March), before two additional hikes in 2023, which would be one of the more aggressive since the 1980s. Key rates would then only be lowered slightly in 2024. taking the risk of a "hard landing". Jerome Powell warned us that the rate hike will not be painless. With financial conditions deteriorating rapidly (30-year property rates, for example, fell from 3.27% at the start of the year to 6%) and the US economic slowdown is widely perceptible, it is legitimate to ask whether the US central bank will be able to carry out its program.
On the side of the ECB, Christine Lagarde was forced to call an emergency meeting in the face of soaring interest rates in peripheral countries, having failed, during her last intervention, to reassure on the risk of fragmentation of the EURO zone. While this exit has made it possible to limit tensions on Italian rates, in practice the ECB remains powerless with few tools at its disposal, most of which require it to free itself from the allocation keys and/or obtain an agreement of the European Union (cf. the legal obstacles of the Court of Karlsruhe in Germany on the proportionality of the purchase programs of the ECB).
The ongoing monetary tightening is leading to one of the worst beginnings of the year for bonds, with the famous bond crash, prophesied for several years, being here! Few segments escape it: for example, the performance of the German 2-year since the beginning of the year, an investment deemed to be safe, comes out at -4%...
