SAO PAULO | By Marcus Nunes via Historinhas | For the last 16 months the Fed has been on “tightening mode”. This is very clearly reflected in the chart for inflation expectations above. When Bernanke started the “taper talk” in May 13 inflation expectations came down and stayed down. Following the June 14 FOMC meeting, dedicated to discussions of “policy normalization” inflation expectations dived! How can they be surprised with the consequences.
LONDON | By Rajiv Setia and Anshul Pradhan at Barclays | Developed rates markets rallied globally over the past week, led by the long end, largely in response to the across-the-board underperformance of risk-assets. Figure 1 shows changes in ED-implied rates on the day of the September FOMC meeting, as well as the change from pre-FOMC levels to now.
MADRID | The Corner | What you need to be watching today: FOMC’s decisions, UK’s unemployment rate data, Eurozone and US CPIs. Also, ECB’s Mersch will speak in Hamburg. European equity-index futures climbed buoyed by the important confirmation (269 votes in favour/ 244 against) of French PM Manuel Valls at the Parliament (Aa1 n, AA, and AA + e), only one month after he submitted the 2015 budget for the country and despite various rumours about a possible downgrade to Aa1 n by Moody’s this Friday.
MADRID | The Corner | Don’t expect big changes in stock markets’ behaviour today: everyone is waiting for the main events of the week, that is, any move from the US Federal Reserve (FOMC meeting ends on Wednesday) and the Scotland referendum on Thursday. Just note that Germany is releasing ZEW index today, which gauges big investors and analysts’ confidence in the EU’s main economy. In the UK we’ll have consumer prices for August.
SAO PAULO | Guest post by Benjamin Cole at Historinhas | No serious democrat contends that obscurantism, opacity and secrecy are handmaidens of good government. Indeed, closed doors are properly and universally regarded as cardinal sins, while transparency and accountability as gateways to working democracies. Yet the public is barred from meetings of the most powerful economic policymaking body in the United States—the Federal Open Market Committee, the decision-making body of the Federal Reserve Board, wherein monetary policy is decided.
SAO PAULO | By Marcus Nunes | The fact that Ms Yellen is a dove today does not imply that she would tolerate rising inflation tomorrow. She will need to persuade the markets, and the public, of that in the coming weeks.
LONDON | By Michael Gavin at Barclays | Today, we mainly remember the ‘Greenspan conundrum’ as a puzzle about the level of US interest rates in the several years leading up to the 2007-08 financial crisis. But the original conundrum was as much about the insensitivity of long-term interest rates to the tightening of monetary that began in mid-2004 as it was about the level of interest rates.