Central Banks Focus on Energy Shock Ahead of Rate Decisions

Sree Kochugovindan, Senior Research Analyst at Aberdeen Investments, talks about the US economy and global central bank activity in a week of rate decisions.

The Bank of Japan left its key interest rate unchanged in a split vote that boosted the chance of a June hike. But the weak yen saw only a brief respite as Governor Kazuo Ueda cast doubt on the economy’s outlook.

The BOJ held its policy rate steady at 0.75% at the end of its two-day policy meeting Tuesday, according to a statement. The 6-3 vote represents the biggest divide under Ueda’s governorship, suggesting swelling pressure to normalize policy.

The yen strengthened soon after the decision, briefly breaking through the 159 level against the dollar. But it pared gains during Ueda’s press conference after he said there’s now less likelihood the BOJ will meet its outlook for the economy and prices. That keeps the door open to a longer hold as the war in the Middle East clouds prospects for growth.

“If I were to sum up the main reason for stand-pat in one sentence, it’s that the certainty of meeting our baseline outlook has declined quite significantly this time,” Ueda said.

Those comments came after the bank said in an earlier statement that price trends are likely to be in line with its stable inflation target of 2% in the second half of fiscal 2026 to fiscal 2027 — in line with past guidance. It also halved its forecast for economic growth this fiscal year to 0.5%.

In an hour-long press conference, the governor continued to give the even-handed comments that have left investors confused about his main message in the past. Having indicated there was less confidence in the outlook than before, he also kept the door open to a June rate move even if the economy starts to slow. There has long been a linkage between financial markets and sports. Both entail some element of competition and keeping score, as well as moments of acute, almost unbearable pressure. That’s one of the reasons that former athletes have often found a fairly smooth entree into the financial world, and why sports analogies are so popular among both practitioners and observers. In my time as a punter I was taken golfing and skiing, and as a spectator went to see baseball, American football, hockey, soccer, rugby, cricket, and tennis, among other things. That sort of thing died down a lot after the GFC, and I don’t know if we’ll ever see it get back to where it was before the crisis. In any event, a key feature of sports leagues is of course the table, or standings. With Jerome Powell set to take his last meeting at the helm of the FOMC this week, I thought that it would be interesting to assess where he ranks in the league table of modern Fed chiefs.

While this sort of thing can be done qualitatively, that sort of analysis leaves plenty of room for ambiguity and bias. Sports fans will be all too familiar with waffling arguments that offer little compelling evidence; YouTube is full of videos rating “all-time” teams replete with recency and home-team bias, for example. Qualitative assessment of Fed chairs entails engaging in some sort of counterfactual analysis almost by necessity; funny enough, when the Fed itself has done this in the past they’ve almost always found that they did exactly the right thing. One notable exception to this came from Powell himself, who admitted that they muffed the response to post-Covid inflation. Give him a tick for honesty, at least.

Instead, though, let’s take a more quantitative approach. I’m coming at this from the perspective of a financial market professional, for whom asset-market performance matters just as much as dual-mandate concerns. I identified six criteria by which to evaluate and rank modern Fed chairs, by which I mean the seven people (from Arthur Burns through Powell) who have held the seat since the early 1970s:

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