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Trends in monetary policy

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  • The US Beige Book continues to see modest to moderate expansion of the economy. Is "modest to moderate" enough to scale back bond buying? Probably. It is not just about the growth, but also the normalisation of monetary conditions which suggests unconventional policy is less necessary.
  • The services ISM of business sentiment should add to the case for a scaling back of fed bond buying although the employment subcomponent may be worth looking at. The employment data in sentiment has been showing expansion but at a slower pace.
  • The ECB decision is not likely to change anything. Draghi has to balance the desire to applaud recent evidence that the economy has bottomed with reassurance that the Euro area will continue to get accommodation for the foreseeable future.
  • The Bank of England decision is also expected to leave rates unchanged. Inflation remains low but the improvements in the economy have been strong. Does this situation warrant forward guidance on rates for a lengthy period (not that anyone seems to be paying attention to forward guidance).

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