Liquidity shock

The world is receiving an incredible amount of monetary stimuli. So far in 2025, 64 rate cuts from central banks all over the world, and with Banxico on Wednesday, 65. And that comes on top of another record year, 2024, where central banks were very active as well. The only three central banks that have hiked in 2025 are Brazil, Japan and Turkey. And perhaps the key one for the world, the Fed, continues to remain cautious about inflation and consequently, inactive. What is the Fed seeing that the other central bankers miss? Is it a policy mistake by omission? Perhaps Powell does not fully trust the data the BLS publishes and pays more attention to other data points. Perhaps he’s more concerned with tariffs and the new fiscal bill and the impact they may have on prices. But it is clearly out of tune with the other central banks in the world. That’s why the economy symposium at Jackson hole this summer, in August 21-23rd, where major central bankers get together to discuss economic affairs, can be key for the Fed September meeting, where the futures market discounts a rate cut with 90% probability. But it’s also clear that other central banks are doing the Fed’s job when it comes to rate cuts. Markets are up likely because of the liquidity being injected in the system. And now with the OBBB approved by the Senate, even more. The contrarian view will be to expect a hike, if some inflation data starts to come hotter than expected. No one seems to be discounting that possibility.

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