Much of this is due to actors outside the U.S. The extent of big city lockdowns in mainland China, and the fact they've lasted for weeks, "is the single biggest risk to 2022 global growth, full stop," Leland Miller, chief executive officer of China Beige Book International, wrote in a report last month. I sympathize with his view. So, perhaps, would Kashkari. Not only are the shutdowns causing further delays in shipping and factory orders, but they're distorting commodity prices in markets with thin liquidity.
The lockdowns in China will have a pernicious effect whether they're resolved in a week or in a year, since they'll either push up goods prices for the foreseeable future or send crude oil price higher should China relax its pandemic-era policies. The fact that the U.S. economy is so exposed to China's decision on how to handle its Covid outbreaks—and to a lesser extent the Ukraine war—shows how little control the Fed has over the next leg of the economic story.
Investors are being trained to trade on so-called tail risks and macro headlines, since the Fed has lost control of the plot and can't come to their rescue. The ensuing volatility will curtail risk taking, further tightening financial conditions in a way that's also out of the Fed's control. It's hard to see how the central bank can recapture the market narrative. The next few months will be rocky, regardless of how well the Fed manages to finesse its message.
Lisa Abramowicz is a co-host of Bloomberg Surveillance on Bloomberg TV.