Thinkpad: You, Doing That Thing You Do...
Thinkpad: The week was all about central banks 'doing that thing they do....'
Happy Sunday.
The year's winding down but, before it does, the week brought one last (hopefully!) hurrah of activity. It was a week in which central banks did what they do—sound the alarm on inflation.
The U.S. Federal Reserve maneuvered what was termed as its sharpest pivot in recent times. It sees inflation as transitory no more, in fact, Chair Jay Powell termed it as one of the top two risks. And so, the Fed doubled down on its plans to taper asset purchases. The Federal Open Market Committee's dot plot now suggests three rate hikes in 2022.
Was the equity market heartbroken? Belting out The Wonders song ♫You..Doing that thing you do...Breakin' my heart into a million pieces...Like you always do....♫? Surprisingly, no. There was no large sell-off in equity markets post the Fed telegraphing its pivot. More importantly, long term bond yields in the U.S. saw no large spike.
Hold my beer—said the Bank of England to the Fed. It proceeded to become the first G7 central bank to raise rates by 15 basis points. "More persistent" inflation prompted the surprise rate hike, the BoE Governor Andrew Bailey said.
Amid the attack of the hawks, the ECB stuck to a broadly dovish path. For a wrap up of all central banking action over the week, read here. Can the rapidly spreading Omicron variant of the Covid virus lead to another sharp turn in policy in the months ahead? So far, both the Fed and the BoE seem to be betting that economies have learnt to live with the virus but brace yourself for a lot more hand wringing on the inflation-growth trade-off as we enter 2022.
Back home, we got two inflation readings. Retail inflation, which India targets, was within the acceptable range but wholesale inflation soared to its highest since 1991. These two — CPI and WPI, are old foes and every once in a while they go down their own paths. Why the divergence this time and will WPI drag CPI up with it? You can read here.
The week also saw an interesting development related to the rapidly growing 'Buy Now, Pay Later' industry. The U.S. Consumer Financial Protection Bureau said it is looking into the BNPL industry. "Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too," the CFPB chief was reported as saying.
The CFPB is worried about three things, wrote Suresh Ganapathy of Macquarie in a note — accumulating debt; regulatory arbitrage; data harvesting. The rapid growth of BNPL will prompt other regulators, including in India, to take a tougher stance in the months ahead.
But till they do, the 'pay later' party is raging. As spotted by BloombergQuint's Vishwanath Nair, pizzas now come with a 'pay later' option too! As do gadgets, clothes, hotel stays, airline tickets... If you are smart, you can plan your year end holiday now for no cost. Small problem — you do have to pay later.
Holiday now, think later.