Investors and observers have hailed the Fed’s decision to trim its balance sheet from October onwards as a turning point in the drive to normalise monetary policy. But a decline of $10 billion per month in the hefty portfolio the Fed has accumulated in recent years will hardly have any visible effect on the bond market.
Articles by JP Marin Arrese
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The ECB governing board will meet today amidst a climate that doesn’t invite a move of any kind. It goes without saying that the only open option is whether or not to launch a discussion on how to undertake the tapering of its asset buying programme.
Donald Trump has launched a nation-wide campaign in an attempt to salvage his tax reform plans. And time is running out for Congress. After deciding to totally amend the bill, it is proving to be incapable of reaching a minimum consensus on its shape and content.
In Jackson Hole, the FED and ECB Chairs have voiced concern about US plans to unravel the Dodd-Frank financial regulation act, thus undermining overall stability.
The US Congress used to bully the White House by threatening to put a lid on public expenditure, forcing the administration to face failure. Mr Trump has turned the rules of the game upside down by menacing that he will do this should Congress fail to fund the Mexican wall.
The minutes released by the FED and the ECB last week shared concern about how to inform about their monetary stance. They fear unsettling the markets should investors wrongly interpret the messages conveyed to them. When you lack a clear policy perspective, the best thing you can do is to manage communication in a fairly tight way.
Mr Trump would be wise to avoid further threatening once he’s made clear that the US will immediately retaliate should North Korea launch even a harmless attack close to Guam. Undoubtedly Mr Kim got the message. That said, no-one knows how he might react next time.
The markets are becoming increasingly sceptical about Trump’s ability to enforce any coherent economic policy mix. Even if his advisors in this field are seasoned bankers, the White House is rapidly losing its grip on critical decision-making areas, such as the budget stance.
Last week, the ECB’s governing council openly disavowed its chairman by refusing to provide any hint about the potential dismantling of quantitative easing. Draghi was at pains to reconcile this rebuke with his sanguine message in Sintra pointing to a tapering decision shortly after the summer break. In the press conference following the board, he was forced to admit that for the time being inflation run far away from its medium-term goal.
Janet Yellen has delivered what observers see as her last testimony at both Houses of the Congress. Rumours increasingly point to the President’s chief economic advisor as the potential successor when her mandate comes to an end in February. Mr Trump has never disguised his contempt for her, whom he depicted in one of his twits as the champion of low inflation.