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The importance of knowing what accomodation is

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  • The minutes of the last US FOMC basically said if things in the economy keep improving the Fed will reduce its bond buying. We think that things in the economy will keep on improving, and therefore the Fed will reduce its bond buying later this year.
  • Fed Chairman Bernanke said that monetary policy will need to remain accommodative. Indeed it will. This does not mean no tapering. 0% Fed funds is accommodative. Negative real rates are accommodative. A 20% Fed balance:GDP ratio is accommodative. Those things remain even with tapering.
  • The Euro area data's recent weakness has caused our Euro team to revise down their economic outlook for this year (from -0.4% to -0.7% GDP growth, with a small upward revision next year. For the UK, however, there is a small upward revision this year and a larger upward revision in 2014.
  • Australian unemployment rose, reinforcing the idea that the RBA will cut rates next month. In Japan the BoJ kept policy unchanged (with marginal downward revisions to its forecasts for inflation and growth). The ECB monthly bulletin is due today.

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