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The end of the beginning

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  • This is not the end. It is not the beginning of the end. It is, perhaps, the end of the beginning. We see the Fed decelerating the expansion of its balance sheet, cutting back USD10bn on bond purchases while making it clear that the fed funds rate will remain low.
  • Financial markets are expecting the Fed to begin to reduce its bond purchases; it would be foolish of the Fed to ignore such an opportunity to undertake a delicate policy operation in an environment that is not likely to generate major market repercussions.
  • The Bank of England will be issuing minutes from its last meeting. Of interest is whether the effectiveness (or rather the complete ineffectiveness) of forward guidance is mentioned. Despite the introduction of a Canadian accent, the word "labour" should still be spelled correctly in the minutes.
  • Italy's government is reported to be considering raising the VAT rate in October (by 1% to 22%). Meanwhile the French audit office yesterday warned of risks of a "dangerous debt spiral" related to the welfare budget deficit.

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