Permanent Distortion by Nomi Prins

Author:Nomi Prins [Prins, Nomi]
Language: eng
Format: epub
Publisher: PublicAffairs
Published: 2022-10-11T00:00:00+00:00

These increases in commodity prices manifested differently for different countries. Consumers in emerging markets that were still dealing with rising coronavirus cases and higher prices for basic food and living expenses were hardest hit.108 That, coupled with a sharp appreciation of the US dollar relative to domestic currencies, made imported items even more expensive and burdensome. Indeed, the greenback closed 2021 with its biggest annual gain in six years after the Fed shifted from its ultra-dovish stance, though other central banks, notably the ECB, BOJ, and PBOC, did not immediately follow that policy change.109

The markets, on the other hand, after a brief period of rumination, decided to make it very clear to Fed chairman Jerome Powell how unhappy they were about the Fed’s pivot to raising rates. As a result, market volatility spiked up in January 2022 in a sort of panic-like series of intraday movements reminiscent of those in March 2020. The S&P 500, Dow, and Nasdaq all dipped into what’s called “correction territory,” which is when stock markets or individual stocks shed 10% or more of their value. The Nasdaq fared the worst. This was all due to fear that the Fed was, as the Wall Street Journal overstated it, “about to end America’s era of easy money.”110 As if raising rates by two full percentage points over two years, as the Fed indicated it might, would mean an actual end to easy money.

The Fed was caught between another rock and hard place of its own making. Again, the Fed had articulated no exit plan at the onset of the pandemic. So when it signaled a series of rate hikes, markets reacted with stomach-churning choppiness. Trying to serve two masters, the markets and the economy, had again shown itself to be an approach that would never self-correct without pain for both, which became increasingly apparent as 2022 unfolded.

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