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The dynamic duo “Fed Watch” is back in a new episode. This time, Christian Keroles and I walk through policy updates from the world’s three major central banks, the Federal Reserve, the European Central Bank (ECB) and the People’s Bank of China (PBOC).
This year has been action-packed from the central bank and it can be difficult to keep up with everything that is happening, even for those trying to monitor monetary issues. The global recession is far from over, and while the Federal Reserve and Jerome Powell may be holding policies steady, the ECB and PBOC are actively fighting slowing economic data.
The ECB’s policy is the most exciting because it is the most active, with the most colorful rhetoric. Be last week expanded its incentive program through €500 billion. Their Pandemic Emergency Purchase Program (PEPP) is now a whoop €1.85 trillion. In the statements of the ECB, it admits to fighting deflation and a strong euro, despite unprecedented action by the central bank this year. It seems the more it does, the worse the situation gets.
The Federal Reserve will meet on December 16, 2020 for its last meeting of the year. Chairman Powell is is expected to keep the policy unchanged. Against the strength of the euro and the renminbi, the US dollar has weakened, with the dollar index (DXY) extending its lows year on year and approaching its two-year low. This creates a dichotomy: the least active central bank has the relatively weaker currency, which is contrary to the accepted wisdom that the activity of the central bank 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 have it wave of default settings with which the PBOC has been dealing with in recent weeks. To address deflationary pressures in the Chinese economy, it rolled over previous bailout loans and expanded by $ 145 billion.
The episode ended with a discussion of a possible speculative attack on the dollar. MicroStrategy has given people an overview of how to borrow hundreds of millions of dollars and buy bitcoin with it. If done in large enough quantities, it can force the price of bitcoin up and the relative value of debt down. MassMutual was another big story too, but as I said on the show, “Bitcoiners have been expecting this for a long time.”
This is another great installment to keep you up to date on central banking issues. Don’t forget to subscribe to Fed Watch’s new RSS feed so you don’t miss any of our great guest insights in the future.