Markets braced for fresh influence
The influence of Central Banks in general, but those of the G7, in particular, has been muted for almost ten years as they did what they needed to over the Financial Crisis then sat back to watch the results of their decisions.
It was their desire to head off any global meltdown and to a large extent that has been achieved but at what cost to their credibility. Concentrating on the Federal Reserve, Bank of England and European Central Bank, do they exert the same influence over markets as they did prior to the crisis?
Mario Draghi has been lauded for his handling of the debt crisis that threatened to engulf the Eurozone, but in reality, has merely kicked the can down the road, and his successor will be most likely saddled with that thorny issue.
Janet Yellen was roundly criticised at home for the way in which she allowed the situation to drift not taking a decisive stand on the withdrawal of accommodation. The “cheerleader” for that criticism was Donald Trump during his campaign but he quickly changed his tune when he became President, although he replaced Mrs Yellen with Jay Powell.
Finally, the Bank of England, facing several headwinds, had their credibility severely tested when they tried to fool the markets into believing they were going to hike rates then pulled the plug. Latterly they have become more involved in the Brexit discussion concerned that they will be left to clear up any mess.
Independence; the key to Central Bank credence.
Jay Powell, the Chairman of the Federal Reserve is still considered the most powerful Central Banker in the world. How much longer he will hold that title is a matter of conjecture. The most powerful but not now the most influential as that title has shifted and is yet to be decided.
Powell made a speech recently in which he spoke of the need for continued Central Bank independence if their influence and credibility are to be maintained. This is a valid point since the financial crisis has taught us the importance of silos in certain areas of the economy.
Governments come and go and in most of the G7, particularly the U.S., U.K. France and Italy, the swing between the doctrine of the parties is so large that if they were exerting influence over their Central Banks, it would be chaotic and unworkable.
There is another significant question to be answered going forward; what is the point of G7?
Is it merely now a talking shop, since the members America, Britain, France, Germany, Italy, Canada and Japan represent, as a group, very little. In a list of the seven most influential nations, it would read more like; America China, Russia, The EU and then it would be anyone’s guess, with several nations considering themselves to be worthy of a spot. It is as outmoded as the makeup of the dollar index but that is another story!