Industrial Product And Raw Materials Price Indexes, July 2024

Data Interpretation

Summary:

Prices of products manufactured in Canada, as measured by the Industrial Product Price Index (IPPI), were unchanged month over month in July and rose 2.9% on a yearly basis. Prices of raw materials purchased by manufacturers operating in Canada, as measured by the Raw Materials Price Index (RMPI), rose 0.7% month over month in July and increased 4.1% year over year.

Industrial Product Price Index

On a monthly basis, the IPPI was unchanged in July following a 0.1% decrease in June. Higher prices for energy and petroleum products (+2.0%) were offset by lower prices for lumber and other wood products (-3.4%). Excluding energy and petroleum products, the IPPI declined 0.2%.

Prices for energy and petroleum products rose 2.0% month over month in July, after posting two straight monthly declines. Prices for finished motor gasoline (+2.5%) were the largest driver of the increase. Diesel fuel prices (+2.5%) also increased on a monthly basis. Higher gasoline prices were mainly driven by increased gasoline demand during the summer. According to US Energy Information Administration (EIA) estimates, on a monthly basis, global petroleum and other liquid fuels consumption has surpassed total production each month from May to July. EIA estimates also reported that US gasoline stocks had been trending downward since the beginning of the year. In July, gasoline stocks fell 2.7% compared with the previous month.

Prices for lumber and other wood products fell 3.4% from June to July, mainly on lower prices for softwood lumber (-7.8%). This was the fourth consecutive monthly decrease for softwood lumber and the largest decline since September 2022 (-9.6%). The decline was mainly attributable to lower demand caused by a slowing housing market in both Canada and the United States. Seasonally adjusted housing starts in Canada declined 1.5% from the first quarter to the second quarter of 2024, according to Canada Mortgage and Housing Corporation data. Quarterly housing starts in the United States dropped 4.8% in the second quarter, reaching the lowest level since the second quarter of 2020.

Prices of chemicals and chemical products fell 0.7% month over month in July 2024, mainly on lower prices for ammonia and chemical fertilizers (-14.8%). This was the largest month-over-month decline for ammonia and chemical fertilizers since August 2022 (-17.3%). Prices for fertilizers normally drop in July with a slowdown in seasonal demand. Lower prices for fertilizers were largely offset in July 2024 by an increase in prices for petrochemicals (+5.0%), which were partly influenced by higher prices of crude energy products (+2.2%).

The prices of meat, fish and dairy products decreased 0.4% from June to July, following four straight monthly increases. Lower prices for fresh and frozen beef and veal (-3.6%) were mainly behind the monthly decrease in the group. A slowdown in demand put downward pressure on beef prices in July. Despite the decrease in beef prices, prices for cattle and calves (+0.4%) were up for the sixth month in a row, mainly due to tight supply. According to Agriculture and Agri-Food Canada, cattle slaughter numbers fell in both Canada and the United States on a monthly and yearly basis in July.

Prices for primary non-ferrous metal products edged up 0.1% month over month in July. Higher prices for unwrought gold, silver, and platinum group metals, and their alloys (+1.6%) were largely offset by a decrease in nickel prices (-6.5%). Gold prices were up in part due to growing speculation that the US Federal Reserve could cut interest rates in the coming months. Elevated geopolitical tensions between Israel and other Middle Eastern countries also supported the price of gold in July by spurring safe-haven demand. Lower nickel prices were mainly due to the ongoing high level of supply from Indonesian producers.

Year over year

The IPPI rose 2.9% year over year in July.

Unwrought gold, silver, and platinum group metals, and their alloys (+25.3%) were the largest contributor to the IPPI's upward year-over-year movement in July. Economic and geopolitical uncertainty around the globe contributed to the rise of precious metal prices over the 12 months ending in July. Prices for unwrought aluminum and aluminum alloys (+26.3%), petrochemicals (+20.6%), and diesel fuel (+5.4%) were also noteworthy contributors to the IPPI's year-over-year increase.

On the other hand, prices declined year over year in July for grain and oilseed products, n.e.c. (not elsewhere classified) (-19.7%), softwood lumber (-11.2%), and unwrought nickel and nickel alloys (-19.1%).

Raw Materials Price Index

The RMPI rose 0.7% month over month in July, mainly due to higher prices for crude energy products (+2.2%). Excluding crude energy products, the RMPI was down 0.2%.

Prices for crude energy products rose 2.2% in July, after falling for two straight months. The monthly increase was mainly driven by higher prices for conventional crude oil (+2.2%). Ongoing geopolitical tension in the Middle East and the low level of crude oil production from the Organization of the Petroleum Producing Countries and its partners (OPEC+) contributed to higher crude oil prices. The EIA estimated that OPEC+ crude oil production in July was 2.0% lower than it was in July 2023.

Prices for crop products (-1.6%) fell for the second consecutive month in July. Wheat (-9.3%) and grains (except wheat) (-4.0%) were the principal contributors to the decline. Prices for both commodities were pushed down in part by strong production in the United States and Canada. According to the United States Department of Agriculture's grain stocks report released on June 28, all wheat stocks in the US were 23.3% higher on June 1, 2024, compared with June 1, 2023. Other grains experienced substantial increases as well. For example, US corn stocks were 21.7% larger on June 1, 2024, relative to the same date a year prior.

Prices for logs, pulpwood, natural rubber and other forestry products fell 3.9% month over month in July. Logs and bolts (-3.0%) were down for the third consecutive month. The recent downward trend in softwood lumber prices had an impact on the prices of logs and bolts.

Year over year

The RMPI rose 4.1% on a yearly basis in July, posting a fifth straight year-over-year increase.

Prices for gold, silver, and platinum group metal ores and concentrates (+30.4%) were the primary contributor to the year-over-year increase of the RMPI in July. Other product groups that experienced notable year-over-year price increases include conventional crude oil (+7.1%), cattle and calves (+12.0%), and synthetic crude oil (+5.3%). Cattle supply was tight throughout the year in both Canada and the United States.

Major downward contributors to the RMPI's year-over-year change include canola (-21.4%), nickel ores and concentrates (-19.7%), and logs and bolts (-14.0%). Canola and nickel experienced generally high levels of supply over the 12 months ending in July 2024.

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Alex

Unemployment continued to decline in the second quarter of 2024 (2Q2024), in line with increased demand for labour in the economic sector, according to the Labour Market Review, Second Quarter 2024 released last week.

Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin said the number in the labour force grew by 2.5% to 17.15 million persons, primarily driven by a 2.8% increase in the number of employed persons, which reached 16.59 million persons in 2Q2024.

“During the same period, the number of unemployed persons continued to decrease by 4.1% to 557,800 persons, registering an unemployment rate of 3.3%, unchanged for three consecutive quarters,” he said in a statement.

He said escalating household spending due to a strong labour market and broader policy support contributed to an improved performance of Malaysia’s economy, which achieved a higher growth rate of 5.9% year-on-year in 2Q2024, compared with 4.2% in the preceding quarter.

Additionally, he said further expansion in exports, along with potential investments flowing into the country, also played important roles in strengthening demand for labour.

Mohd Uzir said the labour supply remained strong, as the labour force participation rate increased by 0.5 percentage point to 70.5% from a year ago.

Observing the underemployment situation in 2Q2024, the number of persons working less than 30 hours per week declined by 1.6% from 2Q2023.

“As a result, the number of persons in time-related underemployment decreased by 8.9% to 169,800 persons, with a rate of 1.0%,” he said.

As the economy advanced in 2Q2024, he said labour productivity measured by value added per employment edged up by 3.1% as compared to the same quarter last year, reaching a value of RM24,151 per person (2Q2023: RM23,434; 1Q2024: RM24,236).

Meanwhile, total hours worked during 2Q2024 improved by 3.4%, registering a total of 9.61 billion hours.

“Consequently, value added per hour worked increased by 2.4%, with a value of RM41.7 per hour” Mohd Uzir added.

Source: The edge markets

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Cohen

Economic

Political

Iran, a nation steeped in history and rich in cultural heritage, occupies a unique geographical position in the Middle East. Its diverse landscape, which includes mountain ranges, deserts, and access to vital waterways, has played a crucial role in shaping its economic and political landscape. From the rugged terrain of the Zagros and Alborz mountains to the expansive deserts of Dasht-e Kavir and Dasht-e Lut, Iran's physical geography has significantly influenced its resource distribution, trade routes, and geopolitical strategies. This article explores how the geographical features of Iran have impacted its economy and politics, highlighting the complexities and challenges that arise from its location and topography.

Geographical Overview of Iran

Strategic Location

Iran is strategically located in Western Asia, bordering seven countries: Iraq, Türkiye, Armenia, Azerbaijan, Turkmenistan, Afghanistan, and Pakistan. It also has coastlines along the Caspian Sea to the north and the Persian Gulf and Gulf of Oman to the south. This strategic location places Iran at the crossroads of major trade routes between Asia and Europe, making it a critical player in regional geopolitics.

The Persian Gulf in particular, is of immense importance to Iran and the global economy. It is one of the most significant regions for oil production and export, with Iran controlling some of the vital shipping lanes through the Strait of Hormuz, a narrow passage that sees about 20% of the world's petroleum traded by sea. The control of this strait gives Iran considerable geopolitical leverage, especially in its interactions with global powers and neighboring countries.

Mountainous Terrain

Iran's topography is dominated by two major mountain ranges: the Zagros Mountains in the west and the Alborz Mountains in the north. The Zagros Mountains stretch over 1,500 kilometers from the northwest to the southeast of the country, forming a natural barrier that has historically protected Iran from invasions. The Alborz Mountains, which run parallel to the southern coast of the Caspian Sea, contain Iran's highest peak, Mount Damavand, standing at 5,610 meters.

These mountain ranges have had a profound impact on Iran's internal cohesion and defense strategy. The rugged terrain has made transportation and communication difficult, contributing to the relative isolation of various regions within the country. This isolation has fostered a degree of regionalism, with distinct cultural and linguistic groups developing in different parts of the country.

Deserts and Arid Climate

Approximately one-third of Iran's land area is covered by deserts, with the Dasht-e Kavir and Dasht-e Lut being the most prominent. These deserts are among the hottest and driest places on Earth, making them largely uninhabitable and unsuitable for agriculture. The arid climate of these regions has limited Iran's agricultural output, forcing the country to rely heavily on irrigation and making water resources a critical concern for the government.

The scarcity of arable land and water has also influenced population distribution, with the majority of Iran's population concentrated in the more fertile regions to the north and west of the country, particularly along the Caspian Sea and in the foothills of the Zagros and Alborz mountains. This uneven population distribution has implications for economic development and political stability, as the government must manage the needs of densely populated urban areas alongside the more sparsely populated and underdeveloped rural regions.

The Impact of Geography on Iran's Economy

Natural Resources and the Economy

Iran is endowed with significant natural resources, particularly oil and natural gas. According to British Petroleum, the country possesses the fourth-largest proven crude oil reserves and the second-largest natural gas reserves in the world. These resources are primarily located in the southwestern region of Iran, particularly in the Khuzestan province, which lies at the foothills of the Zagros Mountains.

The concentration of oil and gas resources in this region has shaped Iran's economy, making it heavily reliant on the energy sector. Oil exports account for a significant portion of government revenues and foreign exchange earnings. However, this dependency on oil has also made the Iranian economy vulnerable to fluctuations in global oil prices and international sanctions.

The geopolitical importance of Iran's oil and gas resources has also influenced its foreign policy. Iran has used its energy resources as a tool of economic diplomacy, forming alliances with countries that are dependent on its energy exports, while also facing economic pressure from those seeking to curtail its influence in the global energy market.

Agriculture and Water Resources

As stated by World Bank, despite its vast land area, only about 10% of Iran's land is arable, and agriculture contributes to less than 10% of the country's GDP. The arid climate and lack of sufficient rainfall have made agriculture challenging, forcing the country to rely heavily on irrigation from rivers, underground aquifers, and dams. The main agricultural regions are located in the north and west, where the climate is more temperate and the soil more fertile.

Water scarcity is one of the most pressing challenges facing Iran's economy. The country's rivers, including the Karun, Karkheh, and Zayandeh Roud, are crucial for both agriculture and human consumption, but they are under severe stress due to overuse, pollution, and climate change. The depletion of water resources has led to the drying up of lakes and rivers, reduced agricultural output, and the displacement of rural communities, contributing to urban migration and social unrest.

The Iranian government has invested in large-scale infrastructure projects, such as dams and irrigation systems, to manage its water resources. However, these projects have often been criticized for their environmental impact and inefficiency. The construction of dams has led to the displacement of communities, destruction of ecosystems, and further exacerbation of water scarcity in downstream areas.

Trade and Transportation

Iran's geographical location as a land bridge between East and West has historically made it an important hub for trade and commerce. The ancient Silk Road, which connected China to Europe, passed through Iran, facilitating the exchange of goods, culture, and ideas. Today, Iran continues to be a critical transit country for trade routes connecting Central Asia, the Middle East, and Europe.

The country's mountainous terrain, however, poses significant challenges to transportation and infrastructure development. The rugged landscape makes the construction and maintenance of roads, railways, and pipelines difficult and costly. Despite these challenges, Iran has invested in expanding its transportation network, including the construction of highways, railways, and ports, to enhance its connectivity and boost trade.

The development of the Chabahar port in southeastern Iran, for example, is part of the government's strategy to increase its access to international markets and reduce its dependence on the Strait of Hormuz. The port is intended to serve as a major transit hub for goods from India, Afghanistan, and Central Asia, providing an alternative trade route that bypasses Pakistan and the Persian Gulf.

The Impact of Geography on Iran's Politics

Internal Political Dynamics

Iran's diverse geography has contributed to the development of distinct regional identities and has influenced the country's internal political dynamics. The mountainous terrain and the isolation of certain regions have fostered a sense of autonomy among various ethnic and cultural groups, such as the Kurds in the west, the Baluchis in the southeast, and the Azeris in the northwest.

These regional identities have occasionally clashed with the central government's efforts to impose a unified national identity and exert control over the entire country. Ethnic and regional tensions have sometimes erupted into violence, particularly in border regions where separatist movements have sought greater autonomy or independence. The government's response to these movements has often been harsh, with security forces deployed to suppress dissent and maintain control over restive regions.

The geographical isolation of certain regions has also contributed to uneven economic development across the country. While urban centers such as Tehran, Isfahan, and Shiraz have seen significant investment and growth, rural and border regions have often been neglected, leading to disparities in income, infrastructure, and access to services. This economic inequality has fueled discontent and resentment among marginalized communities, further complicating the country's internal political landscape.

Geopolitics and Foreign Relations

Iran's strategic location and its control over the Strait of Hormuz have made it a key player in regional and global geopolitics. The Strait of Hormuz is one of the most important chokepoints for global oil transportation, with about 20% of the world's oil passing through it. Iran's ability to threaten or block this vital shipping lane gives it significant leverage in its dealings with both regional rivals and global powers.

This geographical advantage has influenced Iran's foreign policy, particularly its approach to relations with the United States and its neighbors in the Gulf Cooperation Council (GCC). Iran's geopolitical strategy has often involved leveraging its control over the Strait of Hormuz to counterbalance the influence of the United States and its allies in the region.

Iran's mountainous borders with Iraq, Türkiye, and Afghanistan have also played a role in shaping its foreign relations. The Zagros Mountains, for example, have historically served as a natural barrier between Iran and Iraq, influencing the dynamics of conflict and cooperation between the two countries. During the Iran-Iraq War (1980-1988), the mountainous terrain made conventional warfare difficult and contributed to the protracted nature of the conflict.

In recent years, Iran has sought to expand its influence in the region through a combination of military, economic, and cultural initiatives. This has included supporting proxy groups in Iraq, Syria, Lebanon, and Yemen, as well as investing in infrastructure projects and trade agreements with neighboring countries. Iran's geographic position at the crossroads of the Middle East has made it a central player in the region's complex web of alliances and rivalries.

Environmental Challenges and Political Stability

Iran's geographical and environmental challenges, particularly water scarcity and desertification, have also had political implications. The depletion of water resources and the effects of climate change have worsened existing social and economic tensions, particularly in rural and agricultural communities that depend on water for their livelihoods.

The government's inability to adequately address these environmental challenges has led to widespread protests and unrest in recent years. For example, the drying up of Lake Urmia, once one of the largest saltwater lakes in the world, has had devastating effects on the local environment and economy, leading to protests by farmers and residents affected by the crisis.

These environmental challenges have also forced the government to prioritize certain regions and sectors over others, leading to perceptions of neglect and discrimination among marginalized communities. The resulting social unrest has posed a significant challenge to the government's authority and stability, particularly in regions with a history of separatism or opposition to the central government.

Conclusion

Iran's geographical landscape has played a pivotal role in shaping its economy and politics. The country's strategic location, mountainous terrain, arid climate, and natural resources have influenced everything from its internal cohesion and economic development to its foreign policy and geopolitical strategy. While Iran has benefited from its control over key trade routes and energy resources, it has also faced significant challenges, including regional disparities, environmental degradation, and social unrest.

As Iran continues to navigate the complexities of its geography, the government will need to address the environmental and economic challenges that threaten its stability and development. This will require a combination of investment in infrastructure, sustainable resource management, and efforts to reduce regional inequalities. The interplay between Iran's geography and its political and economic landscape will continue to shape the country's future, influencing its role in both regional and global affairs.

Source: Modern Diplomacy

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Owen Li

‘Median expectations for inflation over the next 12 months remained unchanged at 2.8% for the third consecutive month, having fallen in May to their lowest level since September 2021. Median expectations for inflation three years ahead edged up by 0.1 percentage points in July to 2.4%’, the ECB reported.

The uncertainty about inflation expectations one year ahead remained unchanged once again at the lowest level since February 2022, the survey showed.

Perceived inflation over the past 12 months declined further, from 4.5% in June to 4.1% in July, according to the survey.

Nominal income growth expectations decreased from 1.4% in June to 1.1% in July, and the expectations for nominal spending growth fell slightly from 3.3% in June to 3.2% in July, the survey found.

According to the survey, over the past 12 months, perceptions of nominal spending growth decreased from 5.8% in June to 5.4% in July.

Expectations for the unemployment rate one year ahead remained stable at 10.6% in July, the survey showed.

‘Consumers continued to expect the future unemployment rate to be only slightly higher than the perceived current unemployment rate (10.1%), implying a broadly stable labour market’, the ECB said.

Expectations for economic growth over the next 12 months became more negative, standing now at -1%, versus -0.9% in June and -0.8% in May, the survey showed.

The survey reported that consumer expectations of home price increases one year ahead fell back in July to 2.6% – the same level registered in May after a slight pickup to 2.7% in June –, and that expectations for mortgage interest rates 12 months ahead remained unchanged at 4.8%.

‘The net percentage of households reporting a tightening (relative to those reporting an easing) in access to credit over the previous 12 months declined further, as did the net percentage of those expecting a tightening over the next 12 months’, the ECB said. ‘Both indicators remained close to levels last seen in the second quarter of 2022.’

Measured quarterly, the share of consumers who reported having applied for credit during the past three months increased from 16.8% in April to 17.2% in July, according to the survey.

Source：Econostream Media

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Westpac

Economic

In Australia, the RBA's August meeting minutes again reinforced the Board's well telegraphed views on the economy. In short, there is "less spare capacity than previously assumed" given stronger momentum in demand and a weaker assessment of potential supply. The Board also noted that financial conditions appeared to have "eased modestly" over recent months, as house prices and credit growth had picked up. Alongside the uncertainty over the timing of inflation's sustainable return to target, these judgements were central to the debate over whether to raise or maintain the cash rate at the July meeting.

While the case to leave the cash rate unchanged was deemed stronger, the decision was paired with a need to remain vigilant of inflation risks and guidance that "it was unlikely that the cash rate target would be reduced in the short term", with the Board of the view that "holding the cash rate target steady at its current level for a longer period than currently implied by market pricing may be sufficient to return inflation to target in a reasonable timeframe".

Chief Economist Luci Ellis' essay this week assesses the judgements and points of uncertainty underlying the RBA's decision making. To us it is evident that, while a "greater-than-usual weight" might be being placed "on the flow of data, relative to the forecasts", it is only after the RBA judge labour market slack to have emerged that they will shift their stance on policy. We continue to expect 100bps of easing through 2025, beginning at the February meeting.

Offshore, it was also a quiet week, markets largely marking time ahead of tonight's address to the Jackson Hole Symposium by FOMC Chair Powell.

Ahead of Chair Powell's address, the minutes of the July FOMC meeting made clear that the Committee is very close to deciding the stance of policy is now unnecessarily tight and should be eased. In their discussions, members expressed growing comfort with the trajectory of inflation, with "some further progress… broad based across the major subcomponents of core inflation". Supply and demand in the labour market was also regarded as coming into better balance.

Not known at the time of the meeting is that nonfarm payrolls over the year to March 2024 was 818k lower than initially estimated. While we won't know the month-by-month profile until early next year, when this week's initial revision is finalised, it is equivalent to the average monthly gain over the year to March 2024 being revised from 242k to 174k. Considering payrolls captures the number of jobs, which some people may have two or more of, and as population growth averaged 133k over the year to March 2024, it now looks as though the US labour market has been in balance for more than a year. This fits with CPI ex-shelter inflation holding at or below the 2.0% target since mid-2023.

Note though, activity growth is still characterised by the Committee as robust, so there is no cause for alarm. Instead, the tone of commentary from FOMC officials this week has remained measured, consistent with the "majority" view in the minutes that "if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting".

Of the other data released this week, the inflation readings from the Euro Area and Canada were most significant. Euro Area inflation outcomes for July were unchanged in the final release, prices unchanged in the month and up 2.6%yr. Constructive for the inflation outlook, the ECB's wage measure also moderated to 3.6%yr from 4.7%yr three months earlier. Canadian annual headline inflation meanwhile edged lower in July from 2.7%yr to 2.5%yr as expected.

The data flow and commentary from officials therefore continues to point to rate cuts in coming months not only in the US but across most of the developed world, including the Euro Area, Canada and the UK.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Kevin Du

Cryptocurrency

As centralized domain incidents highlight security flaws, an executive argued that decentralized naming on the Bitcoin network would be a better alternative for domain names.

Mike Carson, the founder of the Bitcoin-based naming project Spaces Protocol, said everyone currently relies on trusted third parties for their usernames and domain names. However, an incident involving decentralized finance (DeFi) protocols relying on Squarespace’s registry system highlighted problems in the current setup.

On July 11, an attack on the Squarespace DNS registry affected over 100 crypto projects. The vulnerability threatened the DeFi space with phishing attacks, which resulted in funds being lost.

Carson believes that this highlights a need for decentralized domains and argues that it should be on Bitcoin, the most secure and decentralized blockchain.

Domains are digital assets that should be on a blockchain

Carson, who founded the domain name back-ordering service Park.io and co-founded software firm Wizehive, told Cointelegraph that domains should be on a blockchain. After years of working with domain registrars, the executive realized that domains should be decentralized. He explained:

“When I owned and managed three ICANN-accredited registrars and worked with various registries and registry operators, I realized that domain names are digital assets and should be managed on a blockchain and not by centralized trusted third parties.”

The executive also compared domain name registrars to banks and Bitcoin (BTC). Carson argued that people should not be forced to rely on a third party to secure their domains. “Why should we have to ask permission to use our money or our names,” he asked.

Furthermore, Carson also highlighted other incidents of government censorship that highlighted the importance of having decentralized domains. In 2017, the Spanish government raided the offices of DotCat (.cat) domains that promoted Catalan independence.

The executive also pointed toward the blocking of high-profile social media accounts and said that this also highlights the importance of decentralized usernames and domain names.

Related: Crypto execs on DeFi domain hacks: Don’t interact with crypto for now

Domain names should be anchored on Bitcoin

Carson, who also previously contributed core code to the Ethereum Name Service (ENS) and Handshake (HNS), argued that the best solution for domains is Bitcoin. He said that this is very important that they feel like it’s inevitable. Carson explained:

“Bitcoin is the most secure and decentralized proof-of-work blockchain, by far. It makes sense that decentralized naming should be anchored in the Bitcoin block space.”

The executive said they built the Spaces Protocol on Bitcoin with these in mind. Carson also added that they built the protocol with “cypherpunk” ideals. “There is no separate token, no premine and no foundation. No changes to the Bitcoin protocol are necessary,” he added.

Carson added that they built Spaces to scale to billions of names while only leaving a small footprint on the Bitcoin block space. He added:

“I think decentralized naming can bring the next billion users to Bitcoin. There are hundreds of millions of domain names and social media companies have billions of users.”

The domain professional also argued that if anything is as important as money for society, it is naming. “Blockspace on the Bitcoin blockchain is valuable because it is the most secure and decentralized ledger in existence. The first killer app built to utilize this was Bitcoin as money. The next will be naming.”

Source: COINTELEGRAPH

Risk Warnings and Disclaimers

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Alex

Economic

Central Bank

Consider the tale of two central banks early this month. Each is long-established, with influence that extends well beyond its country's borders, and both are pressed to make delicate judgment calls aimed at continuing to reduce inflation while avoiding undue damage to growth and jobs. In the event, they end up taking very different approaches within 24 hours of each other.

The first protagonist is the Bank of England (BoE), which cuts its policy rate by 25 basis points (bps) following a 5-4 vote that reflects the complexity of the underlying economic issues. The other is the US Federal Reserve (Fed), which takes pride in forging a consensus and delivering a unanimous vote, only to get battered by analysts and the media in the days following its decision. Which central bank do you trust more with your economic well-being and that of your family and friends?

This is an important question because trust underpins a central bank's ability to fulfil its mandate. Much of today's financial architecture rests on the assumption that central banks are committed to maintaining public confidence in their policymaking. After all, an inflation target must be credible to anchor inflation expectations; and the same goes for forward guidance that is meant to smooth out the bumpiness of policy adjustments over time.

Trust and credibility are supported by offering greater transparency, a process that has evolved over the years into holding regular press conferences and publishing meeting minutes and transcripts. In some cases, the central bank makes quarterly quantitative projections for major policies and economic metrics.

The credibility of both the BoE and the Fed has been bolstered by good outcomes. But they differ on an important input metric: how to communicate their policy decision-making. The situation reminds me of an old quip about lawyers and economists: Unlike lawyers, who can argue with 100% conviction even when the foundation of their case is very weak, economists need a very strong foundation to argue with any conviction at all.

Having incorporated independent, external members into its Monetary Policy Committee (MPC), the BoE does not hesitate to signal divisions among its top decision-makers. The recent 5-4 vote in favour of a cut followed a June vote of 7-2 in favour of keeping rates unchanged. And in February, the MPC voted 2-6-1, with two members calling for a hike, six favouring no change, and one supporting a cut. In each case, all the arguments behind these votes were explained in the days and weeks following the MPC's meeting.

Revealing such a range of individual positions is essentially unheard of at the Fed. While the US central bank prides itself on welcoming a diversity of views during its deliberations behind closed doors, it is also steeped in the tradition of consensus decision-making. Thus, in practice, it maintains very high barriers to publicising dissenting views. Even the Fed Board minutes that are released three weeks after each meeting tend to gloss over the full array of views that were aired. To find out what was really said, one must wait for the full transcripts, which are typically released five years later.

Don't get me wrong. There is value in a consensus-based approach that helps reconcile different opinions and analyses. But a fabricated consensus — often pursued for political reasons or to save face (supposedly) — tends to obfuscate and marginalise views that deserve broader consideration. Coupled with a structural lack of cognitive diversity and a high probability of falling into groupthink, the consensus obsession ultimately undermines the very credibility that the Fed has been trying to restore since its big policy error in 2021.

By refusing to offer the type of decision-making transparency adopted by the BoE, the Fed inadvertently mirrored the complacency of a market that had failed to consider the possibility of a faster and broader than anticipated economic slowdown. As a result, the market reacted violently when a slowdown became apparent, following the release of weaker-than-expected Purchasing Managers' Index data and the latest monthly employment report, which came in the immediate aftermath of the Fed's policy meeting.

The market had absorbed chair Jerome Powell's repeated assurances (including at the European Central Bank conference in Sintra, Portugal, on July 2) that a "fundamentally healthy" economy and a solid labour market gave the Fed ample time to decide on rate cuts. When new data suggested otherwise, chaos ensued as markets scrambled to raise the probability of an unusually large 50bps cut in September from virtually zero to around 80%, as of Aug 2. (They have also priced in a faster and higher magnitude overall rate-cutting cycle.)

This violent reaction brought a dramatic collapse in yields on government bonds and large stock-market losses that, having started in the US, spread globally and exposed vulnerabilities elsewhere, most notably in Japan. Worries about the heightened risk of financial and economic breakage even led some (though not me) to call for an emergency inter-meeting rate cut.

No, I am not advocating that the Fed adopt the type of radical transparency for which the hedge fund Bridgewater is famous. There are certain areas, such as the quarterly "dot plot" of forecasts, in which the Fed has arguably already gone too far. Still, the Fed could — and should — be more open about the policy decisions that affect us all.