Breakingviews - The next revolution in monetary policy is underway

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You Might Like � � � You Might Like � � � � � � � � � Don't like ads? Go ad-free with TradeBriefs Premium Breakingviews - The next revolution in monetary policy is underway    LONDON, June 30 (Reuters Breakingviews) - Monetary policy, Milton Friedman said, acts on the economy with long and variable lags. Just as important for investors is that the reverse is also true. Monetary policy regimes evolve in response to the changing nature of prevailing economic challenges - though this also takes time. The great debate of the current era is whether the inflation-targeting central banks established in the 1990s are still fit for purpose in the ultra-financialised economies of the 2020s. In the past week, both the International Monetary Fund and the Bank for International Settlements have made striking interventions. Investors should take note. The next revolution in monetary policy may be brewing. Start with the IMF. At the European Central Bank's annual get-together in the Portuguese village of Sintra on Monday, Gita Gopinath, the fund's deputy managing director, urged policymakers to confront what she called some "uncomfortable truths". Foremost amongst these is that since central banks began hiking interest rates in late 2021 they have exposed a string of unexpected financial stresses. Last October, UK markets descended into turmoil as margin calls on leveraged investment strategies caused British pension funds to panic-sell government bonds. A month later a default by a South Korean Legoland theme park developer triggered an economy-wide credit crunch in the Asian country. Jitters caused by higher borrowing costs also contributed to the failures of lenders like SVB Financial and Signature Bank in the United States and Credit Suisse in Europe. Continued here

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