The flattening of the dollar yield curve has led to an interesting debate in which the US monetary authority has been involved.
Many analysts fear a not-too-distant economic slowdown both in the United States and globally, due to the consequences of spiraling energy prices and rising official interest rates. This fear could be reflected in a flatter yield curve. For others, increased geopolitical uncertainty would explain the recent volatility in the bond market. Finally, some Fed members simply point to the normal adjustment of asset prices in response to changing investor expectations due to the hawkish bias of monetary policy and the monetary authority’s credibility in bringing down high inflation.
Financial investors always seek certainty when making decisions. And when they lack it, they demand higher returns to maintain their portfolio. Or they reduce their market exposure if they cannot properly assess the risk they are taking, thus opting for safe and reliable assets, such as deposits. The fundamental thing, whatever decision they make, is that it is well-reasoned and not driven by panic. Authorities can do a lot to restore lost certainty. Or at least to reduce uncertainty.
Combating inflation through effective and transparent monetary policy is one of the most important measures. They can also approve reforms and adjustments that increase the economy’s potential growth as a counterpoint to the war’s impasse. Policy coordination and cooperation at all levels, and from all of society, are also fundamental to overcoming difficult times like the present. Authorities have the experience to achieve this; now, only the will is needed.
José Luis Martínez Campuzano, spokesperson for the Spanish Banking Association (AEB)
