Central bankers are hogging the limelight

There is nothing like a rising interest rate environment to turn normally dour central bankers into rock stars.

All of a sudden everyone with a home loan or investments wants to hear every word they utter, and the bankers are only too keen to oblige.

Australia has even seen its own Reserve Bank Governor Dr Philip Lowe appearing on television – answering question on the ABC’s 7.30 program.

We haven’t seen something like that since previous RBA Governor Glenn Stevens appeared on the Seven network to reassure us all in the wake of the global financial crisis.

Jawboning a big part of the job now

This week expect much more of the same given that jawboning – or massaging the expectations of markets and investors – becomes a key part of their strategy to fight inflation.

If central bankers can appear tough and determined enough to look like bona-fide inflation fighters, it enhances their best chance of getting away with fewer interest rate rises than they might otherwise need.

The old saying of “don’t fight the Fed’’ means just that – if the central banker can convince you that interest rates are on the way up, then you might just pull your head in and reduce purchases and calls for wage rises on their say so.

Dr Lowe must overcome the doubters

That might be a bit harder in Dr Lowe’s case, given that it wasn’t very long ago he was insisting that his plan not to raise official interest rates until 2024 was still operational – even though fast rising inflation numbers made that highly doubtful.

He finally flipped and now he is pushing a very different message – rates will rise as often and as high as needed to bring inflation back under control.

This time we really should believe him with the most recent 0.5% hike and more of the same to come the strongest indication that the economy supporting dove suit has been replaced by a hawkish, inflation fighting cape.

RBA minutes likely to reinforce double rises

This week, Dr Lowe will be in the news a lot with the RBA board minutes released, explaining why the board went for a “double” rise of 0.5% and seems determined to do that again next month and even again in August if required.

He is also delivering a speech on “Economic Outlook and Monetary Policy” and is even managing an international appearance late on Friday when he takes part in a UBS Panel discussion on “Central Banks and Inflation” in Zurich, Switzerland.

It is a similar situation on the other side of the Pacific Ocean with US Federal Reserve Chair Jerome Powell giving two days of semi-annual testimony on monetary policy before the US Senate Banking Committee.

More than any other central banker, Powell is walking a really narrow tightrope, trying to get ahead of inflation, which shows little sign of abating at this stage by using larger than usual rate rises without tipping the US economy into a recession.

Supersized rate rises keep on coming

The last US Fed rise was 0.75% and Powell looks like he will keep up that sort of pressure every month until something happens.

The big question is whether inflation will turn down before the economy shifts into reverse and it is far from an exact science.

It would have been very helpful if rates had been rising back when the Fed thought inflation was “transitory”, but you only get one go at these decisions and Powell must now keep playing the hand he has and hope to thread the needle somehow.

Fast falling share markets are suggesting the chances are that things will go wrong so Powell won’t miss a chance to jawbone the market into submission so that he can lay off the interest rate rises a bit earlier than otherwise.

Meanwhile the rest of us look on in horrified fascination, given that wherever the US goes, we are highly likely to follow.