How Central Banks Are Losing Credibility, In Three Charts

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While central banks have yet to lose control over the stock or bond market, an eventuality which even the world’s biggest bond manager warns is just a matter of time, they sure have lost control over what is arguably an even more important market metric: inflation expectations.

Take the euro-area, where despite years of NIRP, QE and corporate bond purchases, inflation expectations have slumped to a record low, adding pressure on the ECB to step up policy support for the region’s economy, even though it was the ECB’s “policy support” ever since the arrival of Mario Draghi, that has led the continent’s inflation expectations to this dismal state.

Five-year forward five-year inflation swaps, a measure of expectations for price increases in coming years, dropped on Friday to 1.1385%, far below the ECB’s target of 2%.

“Draghi is probably not very satisfied with 5y5y ILS hitting a fresh record low,” a snide Christoph Rieger, head of fixed-rate strategy at Commerzbank, said earlier this week.