Taps Coogan – January 23rd, 2023

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Rick Santelli once quipped, back when he was allowed to speak his mind, that all stimulus is fungible. It’s what we like to call Santelli’s Law: what matters is not how much QE or QT one central bank is doing but the net flow from all of them.

Along those lines, the following chart from Wellington Management’s Trevor Noren shows that, thanks to the Bank of Japan’s (BoJ) quixotic attempts to maintain yield curve control, the world’s major central banks are doing what would have been a record amount of net QE prior to Covid.

While the BoJ had allowed its balance sheet to shrink at the end of last year by slashing its holdings of Covid related loans, it has gone on a truly massive buying spree this year in order to defend its yield curve control program. Within that context, it becomes less surprising that markets have found their footing. Indeed, while the BoJ’s stimulus may exacerbate Japan’s still rising inflation, it is effectively offsetting the Fed’s crusade to see how tight they can get policy before causing a recession.