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The dynamic duo of “Fed Watch” is back in another episode. This time, Christian Keroles and I walk through policy updates from the three major central banks of the world, the Federal Reserve, the European Central Bank (ECB) and the People’s Bank of China (PBOC).
This year has been full of central bank action and it can be hard to stay on top of everything happening, even for those who try to follow monetary matters. The global recession is by no means over, and while the Federal Reserve and Jerome Powell might be holding policy constant, the ECB and PBOC are actively fighting slowing economic numbers.
Policy from the ECB is the most exciting because it is the most active, with the most colorful rhetoric. Last week, its expanded its stimulus program by €500 billion. Their Pandemic Emergency Purchase Programme (PEPP) is now a whooping €1.85 trillion. In the ECB’s statements, it admits to fighting deflation and a strong euro, despite the unprecedented central bank action this year. It seems the more it does, the worse its situation gets.
The Federal Reserve meets on December 16, 2020, for its final meeting of the year. Chairman Powell is expected to keep policy unchanged. Relative to the euro and renminbi strength, the U.S. dollar has been weakening, with the dollar index (DXY) extending yearly lows and approaching two-year lows. This presents a dichotomy, the least active central bank has the relatively weaker currency, which is contrary to the accepted wisdom that central bank activity devalues a currency.
The next central bank of interest in this episode of Fed Watch is the PBOC. After an update on the Digital Yuan project, we discussed the wave of defaults faced by the PBOC in recent weeks. To address the deflationary pressures in the Chinese economy it has rolled over previous bailout loans and expanded on them by $145 billion.
The episode ended with a discussion about a possible speculative attack against the dollar. MicroStrategy has given people an outline in how to borrow hundreds of millions of dollars and buy bitcoin with it. If this is done in high enough quantities, it can force the price of bitcoin up and the relative value of the debt down. MassMutual was also another large story, but as I said on the show, “Bitcoiners have been expecting this for a very long time.”
This is another great episode to keep you current on central bank issues. Do not forget to subscribe to Fed Watch’s new RSS feed, so you don’t miss any of our great guest insights in the future.