Uncertainty is not transitory: Ferguson

Hopes for a quick resolution to conditions battering global markets may be misplaced, according to author and historian Niall Ferguson.

Speaking via video at the 2022 ANZ Debt Conference in Sydney, Ferguson said issues such as rising inflation, the conflict in Europe and the impact of those factors on global energy markets were unlikely to be resolved by the end of the calendar year.                                                                                                                            

“I think we all have to get used to the fact that not only was inflation not transitory, but [the conflict in Europe] is not going to be transitory,” he said. “And of course, COVID 19 isn't transitory because it isn't over either. This is very hard for people to adjust to in the age of TikTok.”

Ferguson expects “de-globalisation and decoupling trends” to continue, he said, leaving the outlook murky for many economies – and markets.

“One reason I'm reasonably gloomy about how the year will play out is because I don't see any of [these factors] just stopping,” he said. “On the contrary, I think all of these things are going to persist through the year and potentially into next year.”

Around 300 people attended the ANZ Debt Conference - including 100 investors and 130 issuers - which saw a handful of panels and presentations from ANZ experts and external guests.

Until it’s over

While many are declaring the COVID-19 pandemic a thing of the past, Ferguson is more downbeat on the world’s ability to move on.

“People really want the pandemic to be over,” he said. “They really want to say we're in the post-pandemic phase. But in truth, it's no more likely to be over than influenza was over.”

Ferguson said humanity only gradually got a handle on the flu “over a period of about 100 years”.

“[Expect] a very similar pattern with COVID,” he said. “Even though nobody wants to hear that.”

Besides COVID-19, the other current bane of markets – inflation – is also likely to remain a factor in the medium term, Ferguson said. He draws similarities between the current situation to the one experienced in the 1970s – when the Federal Reserve “raised rates significantly in a succession of attempts to bring inflation under control”.

“The rate hikes necessary to do that in the late seventies and early eighties [totalled] 775 basis points,” Ferguson said. “We are a very long way from that.

“My sense is the Fed will do a lot like what it did in the 1970s. It will do another 75-basis point hike, [and] maybe there'll be another hike after that.”

After that, Ferguson warned of the possibility the risk of recession will force the Fed to “blink”, curtailing its desire to cut.

“And that really will be the rerun of the Seventies,” he said.

Mistake

Ferguson questioned recent decisions by the US Federal Reserve, suggesting there was no justification for the accommodative stance the Fed took to additional stimulus by the Biden administration in March 2021.

“And the Fed remained on easy mode right the way through the year, even when it was obvious… that a major inflation shock was coming,” he said.  “I actually think the mistake that the Fed made in 2021 was one of the worst mistakes in its entire history.

“If you look at the monetary growth rate… related to velocity, the first and second quarter of 2021 saw a massive monetary overshoot - bigger than anything that happened in the late sixties and 1970s.

“This is the Fed at its worst, and I'm afraid I really don’t believe they have a credible inflation fighting strategy, even now.”

Ferguson said the Fed’s task would be complicated by further deterioration in conditions – including things currently not on the radar.

“It's not like history's just going to stall and let the Fed stabilise the situation,” he said. “History will keep happening and, as I said, nothing is as transitory as people thought inflation was going to be.”