Blink and you'll miss these interest-rate pauses

It's time to send out a search party for the interest-rate pause. A meaningful breather, that is, not a light tap of the brakes that barely registers. The moment when central banks could cool their jets has long been anticipated. Pity that moment is being disowned just when we should be enjoying it.     

Around the start of the year, when monetary chiefs in important economies began laying the ground for a break after a series of aggressive hikes, they spoke about lags. That is a reference to the need to allow increases to flow through to the behaviour of companies and consumers. Was policy tight enough to bring inflation down toward target or did officials risk overdoing it and inducing a hard landing? The idea was to be looking forward after months of playing catch-up. 

This implied that when the pause came, it would mean a respectable interval. Not huge — and draped in caveats that work wasn't done and need for data dependency — though long enough to allow for a decent amount of reflection. Then along the way "pause" became a dirty word. The Reserve Bank of Australia stunned investors on Tuesday for the second consecutive month by not only ratcheting up borrowing costs, but sounding more hawkish than before it held back in April. Back then, the RBA saw benefits in waiting for the verdict on the tightening of the prior 11 months. We've heard precious little lately about the virtues of lingering a while.

Get out your microscopes

Aussie refrain in April barely resembles a blip

RBA Governor Philip Lowe emphasised on Wednesday that inflation remains Public Enemy No. 1. The authority is prepared to be patient, he said in response to a question after a speech, but that virtue is being seriously tested. Preserving jobs by not cracking down super hard is one thing, but make no mistake about the bank's resolve. "Our patience has a limit," he said. 

Economists still say Lowe is approaching the end of the hiking cycle — many have been saying that for months. But that end keeps being pushed further out. Just one more increase, maybe two. But after the shocks of May and June, how can that be pronounced with any confidence, let alone the predictions of cuts next year? The risks of a steeper slowdown have gone up. Shortly after Lowe spoke, the government reported that gross domestic product grew a bit slower than anticipated in the first quarter. (The governor's address was titled A Narrow Path.)

This aversion to pausing for long isn't just an Antipodean development. Federal Reserve officials have been teeing up a pit stop this month, but prefer to use the word "skip." Policymakers don't want to say anything that encourages investors to race ahead with bets on early reductions. Governor Philip Jefferson referred to the prospect of "skipping," language also used by Philadelphia Fed chief Patrick Harker. Even Christopher Waller, a hawkish governor, who sounded skeptical about relenting even for a month, adopted the term. "Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks," he said recently. The 'P' word may have become too loaded.

This all sounds a lot like taking a pass next week might be a one-time event before resuming the upward march at July's meeting of the Federal Open Market Committee. But what would be the point of inaction in June if you figure there are a few more hikes left to come? You can't learn much over the course of a month. Unless the goal with pausing is just to show you can do it, even if the objective is to quickly put it behind you. Fed Chair Jerome Powell will be hammered on this point in his press conference, assuming there is a pause. Skip, I mean!  

Happily, a number of central banks in Asia have embraced the pause. South Korea, which launched an early assault on prices, in 2021, has been on hold for a few months. Economists are becoming more confident in calls for cuts before the end of the year. The Reserve Bank of India is also a candidate for early easing. Indonesia has been telling anyone who will listen that it's done for a while now.

That trio doesn't have a very loud microphone, however. The headlines still belong to the central bankers raising rates — reluctant or otherwise. Christine Lagarde, president of the European Central Bank, told lawmakers Tuesday that they can count on further hikes. The Bank of England has the same message.

It's not that long ago that "pivot" was a banned word for policymakers. Too bad that "pause" seems to be on the outs now — even if that is what's coming, eventually. But for goodness sake, don't call it one.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.