'The moment you doubt whether you can fly, you cease forever to be able to do it.'
-- Peter Pan and Haruhiko Kuruda
The BOJ "surprised" markets by going negative on deposit rates and triggered some wild volatility in markets. The Gov. correctly tossed back at the "openness CB doctrine" popular here at home noting, "If you allow the market to price changes smoothly, you will get a reaction that will be just as smooth." As I said to Andrew Ross Sorkin years ago when he questioned my anti-openness stance, "Forward guidance calms markets but reduces efficacy."
So, the US finds itself, barely 8 weeks from leaving ZIRP Neverland, doubting its ability to fly in a world of negative rate groundlings. Negative rates are merely the calibration of impaired system monetary policy not the specific problem. Paying interest on reserves is a policy that shows one is beginning to doubt arial capability. Pushing into negative structures merely indicates a country is worried about the "forever" part. By moving the same lever in opposite directions, the Fed and other CBs find themselves at cross-purposes in the same monetary fantasy.
The US continues to have by our calibration, though declining, an accommodative monetary position. As Martha Stewart would say, "That's a good thing." Going negative does not mean that our global partners have their policies correctly calibrated, however. The ECB continues to penance for past offenses committed and guilted into. The BOJ ? Well, history will not view them kindly for the Lost Decade, now old enough to drink.
Kind advice to central bankers around the globe, present and future: Surprise and do more than expected when adjusting policy. If you can't do both, do nothing. The consequence is the harsh reality that you, like Michael Jordan, can only "fly" for a little while.