I see that there is an article saying that another rate hike is unlikely in the near future – this is true.  If anything, uncertainty – both about the probability of a movement AND the direction of a movement is elevated.  I would not be putting a zero, or even a particularly small probability on a rate cut within the next two meetings.  Note:  I don’t expect one, I expect a lift by around March – and I think the Bank will probably have to move pretty quickly when they do.  But this point is still useful.

Why do I say a cut is possible?  Well it has less to do with the domestic economic situation, and more to do with this stemming from this.  If the Fed does start price level targeting, they will essentially be aiming for a pretty high near term value for inflation – which in turn will see their dollar tank.  If we take this as a broader part of a “currency war” our Reserve Bank would be acting well within their mandate, and likely in an optimal sense, by lowering the cash rate.  A higher dollar tightens monetary conditions (other things equal) and they will want to counter that.

Until we have some idea regarding what the hell the Fed is going to do there will be a huge amount of uncertainty regarding changes in the OCR.  And it isn’t the RBNZ’s fault, they will just be doing what they can given the situation thrust upon them from overseas.

From Policy Progress:

The giveaway words are ‘believe’ and ‘completely’. Very absolute words, those. Generally to be avoided unless you have solid evidence.

Very true, it reminds me of an old quote:

Only a Sith deals in absolutes

Of course, this quote makes sense, given my view that economists share similarities with the Jedi in terms of:

• our inconsistency,
• our inability to agree,
• our unwillingness to commit to a firm opinion,
• (and yet) our absolutism when we are forced to make an opinion,
• our deep sense of thinking we are saving the world by describing trade-offs,
• our (debatable) sense of moral/general superiority over other social sciences,
• and our cool lightsabers.

Now this is not to say that anyone is the Sith [as I’ve said before I like Bernard Hickey, I can’t imagine him getting red eyes and running round with a lightsaber hunting down economists] – as after all, if there is anything Star Wars teaches us it is that no matter the moral standpoint, a desire to provide absolute answers and view things in black and white terms is what drives people to evil.  Not the tag they live under.

So if this post had to have a conclusion [it was obviously just a reason for me to compare economists to Jedis again], it would be to not get annoyed at the “two-handed” economist – as their response is more honest, and fundamentally probably more useful in the long-term, then the response of someone who is willing to be “one-handed”.  The world is uncertain, and the economic method is just trying to shine a light on this uncertainty – not make your choices for you.