We have just come through a series of four central bank policy meetings. This makes it a good time to assess the state of monetary policy around the world.
What is notably different now is that it really seems like, for the first time since 2008, we can actually talk about inflation as not just being a future economic phenomenon.
Broadly speaking, core inflation targets in the developed world tend to hover around 2 percent.
We saw at the meeting of the U.S. Federal Reserve last week that the U.S. central bank is convinced its dual-mandate of controlling inflation and maximizing employment is humming along well. And the Fed is clearly in full tightening mode.
The big question remaining in the U.S. is how any real policy changes from the administration might affect that. Even without legislative wins, consumer and investor sentiment has already increased in the U.S. and has translated into real risk appetite in the business world.
But that is in stark contrast to the world's other major central banks.
The Bank of England last week made it clear that although it is well on the path to 2 percent inflation, it is in no hurry to raise rates. Clearly the elephant in the room there is what will happen as Brexit negotiations begin. Of course, we have heard this chorus before – warnings after the Brexit vote that the UK's economy would fall off a cliff – which it did not.
The European Central Bank is also skating along near its inflation target as well, but with concerns about low growth. It has done nothing material to hint at monetary tightening. The most that can be said is that the ECB seems to at least feel like it no longer has to worry about its economy collapsing.
The Bank of Japan can't even say that right now. It alone among major central banks is still wishing it could have the problem of hitting its inflation target. But right now, the BoJ remains sidelined in a flood of easy money.
My View: Current central bank policy divergence is more extreme than we have seen in a long time. But as we move toward more clarity on global fiscal policy and political developments, we should expect to see adjustments in central bank policy to compensate for whatever happens.
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