On the eve of the Jackson Hole Fed gathering, the San Francisco Reserve Bank Chairman, John Williams, has launched an enlightening debate on the challenge raised by protracted natural interest rates. The so-called r-star would rank now close to zero in the US and below that threshold in the Eurozone.
The minutes of the FOMC’s policy meeting July 26-27 showed voting members were split over whether to raise US rates soon. The majority of the committee believe more macro data is needed before hiking rates, but some expect a move will be needed sooner rather than later.
The outstanding labour market performance in the US has triggered widespread speculation of a Fed rate hike as early as September. Nonetheless, most new jobs are part-time, while the hourly wage increase lags well behind its pre-crisis pace.
Julius Baer Research | In the six weeks since the last Federal Reserve (Fed) meeting, the world has been shaken by several events. Despite rallying equity markets, investors stay rattled and filled with unease. Yet in the US, news on the economic front has been mainly positive. Indicators such as the June employment report, retail sales, housing starts, capacity utilization and the service industry have all beaten expectations.
James Alexander via Historinhas | Brexit is an irrelevance. So say US equities. In fact, if US equities say anything, they seem to think Brexit is a good thing if it means the Fed holds off from rate rises for longer. Bring it on!
Larry Summers has written a perceptive analysis about the Fed’s confusion (and that of all the central banks, by the way) over what they are doing. Last Wednesday he made a brief reference to the FOMC’s decision not to raise rates, with the Fed once again being forced to withdraw from its previous plan of action. The total failure of ‘forward guidance,’ which has only served to make the Fed’s prose even more tedious to hide their misgivings.
James Alexander via Historinhas | The Federal Reserve and other central banks like to see themselves as “data-dependent”. They sit in objective judgement of the facts of the economy as revealed by “data” and then portentously decide whether to attempt to alter the future facts with monetary tightening or loosening.
BoAML | We have remained quite bearish on Euro area inflation for the past few years, particularly compared with ECB forecasts (but also consensus), and have highlighted the many downside risks to the inflation outlook.
Disappointing job growth in May at roughly one-third of the expected figure, coupled with a downward revision for the previous two months, cast unexpected doubts on the US recovery. The labour market has slowed to half the pace seen a year ago.
BBVA Research | The latest personal income and outlays report by the BEA, which is the favourite indicator for the Federal Reserve to measure deflation, showed that income continued to expand at a solid pace (0. 4 % MoM) , while spending increased dramatically (1 % MoM) in April . The increase in income was in line with consensus expectations, while the consumer spending increase was significantly higher (consensus expectations stood at 0.7% MoM). The increase in consumer spending in April was the highest since August 2009 .