In this weekly investment note from Chris Justham, Managing Director, Intermediary Solutions at 7IM, Chris shares some of the reasons why today’s Central Bankers have an even more tricky job than usual in trying to meet their targets.
So, when it comes to the question of what do you want to be when you grow up, I’m going to make a bold assertion and say that your answer to the question above wasn’t “A Central Banker”….
Other than the fact that being an astronaut/Taylor Swift is far more interesting, there’s another reason why it’s not at the top of many lists.
It’s hard.
Take this example. Jerome Powell(pictured) is the Chair of the Federal Reserve in the US. He is responsible for keeping prices and employment stable.
And something he said recently got us thinking:
“In many respects the things are returning more to their state in 2019, which we can think of as normal for this purpose, that’s job openings and quits, and surveys of workers.” 20 March, 2024
Other than being indecipherable (who uses a phrase like ‘job openings and quits’?!) the sources of the data he referenced are far more interesting than they sound.
In order to take the temperature of the economy, the Fed surveys companies to work out the number of ‘Help Wanted’ signs they have in their shop windows.
J-Pow needs to know how desperate companies are for new workers.
But how reliable is the data? It’s a survey of 21,000 businesses in a country made up of over 30 million. While this might sound too little, it’s understandable. After all, this helps with the data being timely – imagining surveying millions of companies every month! Great care is taken to make sure the right mix of companies are being surveyed that represent the country as a whole.
But something curious has happened recently: the portion of respondents has fallen dramatically.
A decade ago, around 70% of those surveyed were informing us of their job openings data. This has now fallen to around 30%. The reasons for this are unclear, but it seems to have taken a step-change after Covid-19. Whatever the reason, though, this signifies how difficult it is for central banks.
Trying to predict the future impact of monetary policy on the economy is hard enough as it is. But understanding what the impact of it is in real-time is also extremely difficult, especially if the data is based on a smaller and smaller sample of the population
Add in the fact that millions of eyes and ears are then primed to make decisions based on your interpretation of the world and I think I’ll stick with my first answer:
I’d rather be performing ‘Shake it Off’ in Edinburgh this weekend.
See you next week!
