In a world priced to perfection and beyond, thanks to 7 years of central bank micromanagement of not only the capital markets but the economy, any and every scapegoat will be used when even the smallest deviations from the scripted economic path occur.
Enter "harsh winter weather." However, when said "harsh winter weather" entered two years in a row and highly-paid US economists turned out to be far more clueless about the future than the worst-paid weatherman, things promptly got funny when the BEA announced last week that it will seasonally adjust seasonally-adjusted data, thus officially jumping the econometric shark, and revealing how big a farce all underlying economic measurements of the economy truly are.
As it turns out it is not just a US "thing" to blame the weather.
Enter the Bank of India, which overnight cut its benchmark rate from 7.5% to 7.25%, as had been largely expected, taking India's interest rate to the lowest since September 2013.
The punchline, however, was when RBI's governor Raghuram Rajan gave his outlook for the possibility of future rate cuts, saying he would have to wait to assess monsoon rains before acting again, an outlook that according to Bloomberg [6] disappointed investors looking for more cuts to spur weak economic growth.
While “a conservative strategy would be to wait” for more certainty on how monsoon rains will affect inflation, weak investment means “a more appropriate stance is to front-load a rate cut today and then wait for data that clarify uncertainty,” Rajan said. He also lowered the RBI’s growth forecast and said inflation risks are tilted on the upside.
Consumer prices rose 4.87 percent in April from a year earlier, holding below Rajan’s 6 percent target for an eighth straight month. While price pressures have so far proved immune to crop damage from unseasonal rains, the weather department predicts monsoon rainfall -- which waters more than half of India’s farmland -- will be below average this year.
Well, we already have a Dow data dependent Fed [7], it is only fitting that we also have a Monsoon-dependent central bank: Rajan said three risks are clouding, no pun intended, the inflation outlook: the possibility of a weak monsoon, rising oil prices and a volatile external environment. Of these, however, the weather got top billing as the biggest swing factor.
Slowly a pattern is emerging: the Fed will never hike rates just before, or during, winter; India will never cut rates just before, or during, a weak monsoon; the ECB will never accelerate QE during summer [8]when everyone goes on vacation (only in the late spring), and so on.
We used to joke that John's Weather Forecasting Stone is a tool no sell-side economist and strategist should live without. But it has now become abundantly clear that when it comes to monetary policy, there is just one tool that every central planner needs more than anything.
The following.
