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Time to consider the Fed

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  • Economics is assuming its rightful place of dominance in markets (displacing politics). Two thirds of respondents in a Wall St Journal survey believe that the Fed will announce a scaling back of bond buying next week. We agree, though see a clear statement that the Fed funds rate will stay unchanged for now.
  • Producer price, retail sales and Michigan consumer confidence data are due out today. If monetary policy is focused on inflation, quantitative policy is more concerned with the velocity of circulation of money - which retail sales hints at. If the US consumer is buying, the Fed does not have to.
  • It is not just the Fed tightening policy Indonesia raised rates yesterday by 0.25% (an unexpected move as they had just raised 0.50%). The weakness of the currency was a factor that the central bank made explicit reference to.
  • Eurogroup finance ministers meet, to general market disinterest. There has been more chatter in Japan about the content of a stimulus package to offset the consumption tax increase. The Nikkei is reporting that Obama will appoint Larry Summers as Fed Chair.

Listen to the audio version of this briefing.