Have central bankers lost control?

Around the world, central bankers have been raising short-term interest rates to no avail: equity prices continue to surge and M&A activity is at record levels. What's going on and how will it all end?

Another strong March US payroll report has rattled financial markets. Although investors had expected slowing US economic activity to presage the first base rate cut in that country late in the second quarter of 2007 the report proved sufficiently strong to suggest that the US may not now embark on the process of interest rate reductions until early in the third quarter. Looking at the shape of the US Treasury bond yield curve, the extent of the inversion (3 month Treasuries yielding more than 10 year paper) might indicate, as it has done in the past, that investors were increasingly concerned regarding the possibility of a hard economic landing later this year.

However, the global economy is clearly thriving, equity prices continue to surge as investor confidence reasserts itself in the wake of the "risk episode" at the end of February and M&A activity continues to hit record levels around the world as "hot money" surges from one destination to the next in the same bewildering way in which a drunken sailor might reel from one side of the road to the other. Around the world central bankers have been raising short-term interest rates in concerted fashion but to no avail. What is going on and how might it all end?

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
MoneyWeek

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.