Which will mess up the most – Fed, BOJ or PBOC?

Anyone hating their job at the moment should spare a thought for Federal Reserve head Jerome Powell. In real time, investors can observe the extent to which Chairman Powell is confused about the direction of US interest rates.

Traders have stopped laughing at former Treasury Secretary Lawrence Summers’ contention the Fed’s next step will be to tighten, not ease. There’s little humor to be found in the Fed’s dilemma as inflation gyrates, the dollar soars and US electioneering descends into chaos.

Loads of prominent economists still think Summers is dreaming. Among them is Mark Zandi, chief economist at Moody’s Analytics.

“The Federal Reserve should cut interest rates – now,” Zandi argues. “The central bank’s current higher-for-longer interest rate strategy – steadfastly holding the federal funds rate that’s directly controlled by the Fed at a high 5.5% – threatens to undermine the economy.”

Bill Dudley, former president of the Fed Bank of New York, thinks that would be a mistake. “Perhaps the Fed’s mantra, instead of ‘higher for longer,’ should be ‘higher indefinitely’ until inflation moves more convincingly in the desired direction,” Dudley wrote on Bloomberg.

The Fed isn’t the only central bank on the verge of what could be a serious policy mistake. The Bank of Japan and People’s Bank of China also may have some serious explaining to do a year from now for errors committed today.

The BOJ, for example, has almost certainly lost its window to end quantitative easing and normalize interest rates. Since taking the helm in April 2023, BOJ Governor Kazuo Ueda has passed up every opportunity to pivot toward a less accommodative policy.

Now, as Japan’s economy contracts – by 2.9% in the first quarter year on year – and