MADRID | The Corner | Janet Yellen spoke about patience in judging when to raise rates on Wednesday, which means no hikes for at least two meetings. The change in guidance was played down by the FOMC statement. BNP Paribas analysts thinks the US central bank wants to prepare markets for hikes but at the same time reassure them. They call for the first hike in September.
SAO PAULO | By Marcus Nunes via Historinhas | Fed officials have great difficulty in thinking outside the box, ceaselessly repeating themselves. If they stopped to think for a moment they would see what´s very different now from what presented itself ten years ago. And the significant difference is not in the rate of inflation or the rate of unemployment, but in the level trend and growth rate of nominal spending
SAO PAULO | By Marcus Nunes | As soon as you mention “market monetarist”, NGDP comes to mind. While for most the all-encompassing variable is inflation, to MMs the “target” variable is NGDP being kept at a steadily rising trend level.
SAO PAULO | By Marcus Nunes via Historinhas | Why? According to the “accountants”: “It’s no secret that spending cuts (and tax hikes) have retarded America’s growth for the past four years. But data from the Bureau of Economic Analysis suggests that the era of austerity may finally have ended.” See the “flagship chart” above.
SAO PAULO | By Marcus Nunes via Historinhas | There´s absolutely nothing new on the economic front! So why there´s so much talk about “policy normalization” (i.e. increase in rates)?
SAO PAULO | By Marcus Nunes via Historinhas | In The Risks to the Inflation Outlook SF Fed researcher Vasco Cúrdia writes: the median inflation forecast is not expected to return to the FOMC target of 2% until after the end of 2016. The uptick in inflation in the first half of 2014 could lead one to believe inflation is finally on the path back toward its target. However, inflation has shown similar patterns several times before and each time the uptick has never lasted very long. According to this model, we should not see inflation begin to recover more firmly until around the end of 2015.
By Sreekala Kochugovindan, Anando Maitra (Barclays) | History highlights the importance of the business cycle in determining the effect of rising rates on asset returns, a topic we discussed in depth in Scenarios for a shifting bond landscape. We examined US data since 1925 and selected episodes where US Treasuries sold off by more than 5% in one year. The results were pretty mixed, with equity returns ranging between plus and minus 50% and providing no consistent pattern.
SAO PAOLO | By Marcus Nunes via Historinhas | Before it was Peter Coy with John Maynard Keynes Is the Economist the World Needs Now. Now it´s Anatole Kaletsky with The takeaway from six years of economic troubles? Keynes was right: The main lesson is that government decisions on taxes and public spending have turned out to be more important as drivers of economic activity than the monetary experiments with zero interest rates and quantitative easing that have dominated media and market attention.
WASHINGTON | Comment by UBS analysts | The FOMC ended QE and made its Fed funds rate hike guidance a bit more data- dependent. While the funds rate is likely to remain in its current range “for a considerable time” after asset purchases end at the end of this month, rate hikes could occur sooner or later than the Fed currently anticipates depending on the evolution of economic data. This was as straightforward an FOMC statement as could have been expected at the end of QE. It does not suggest changes in Fed thinking; nor does it change our expectations for the first Fed fund rate hike in mid-2015.
MADRID | The Corner | As expected, the Fed confirmed the end of its QE3, although the announcement was slightly more restrictive. According to experts at Link Securitites, “while the decision shows that US economic conditions have improved (especially the labour market) and inflation remains at low levels, the message tone was more hawkish.”