January is turning out to be an extremely interesting month in terms of central bank activity. The question is: Do they inflate or deflate and why? The answer is: It depends.
The absolutely astounding move by the Swiss National Bank (SNB) to stop printing money and buying euros to defend the peg at 1.2 Swiss francs was deflationary. It pushes up the value of the franc and reduces the amount of money available in the economy. It also punishes exporters and the tourism industry because Swiss goods and services will become more expensive.
The Fed’s end of quantitative easing is also deflationary; it just stopped printing money and kept things as they are. Lo and behold the dollar has risen against virtually all other currencies.
Lower interest rates at least take away some cost pressure from the financing of hugely capital intensive energy projects.
