The Giants of Economics Win
- Economic rationality 1, market irrationality 0. The US Federal Reserve clearly gave precedence to economic fundamentals in concluding its quantitative policy program (though quantitative policy tightening has been in place for some time).
- The important signal was not the largely as expected conclusion of the FOMC, but the statement stressing the relative health of the US economy and the importance of data in determining future tightening concerns. Market reactions were rightly dismissed.
- US Q3 GDP today should show growth of 3.5%, the fourth quarter in the last five to be at least this strong. This is not a picture of an economy in need of aggressive accommodation. Spain also produces GDP, also likely to be strong (by Euro area standards), although less so in nominal terms.
- German state level inflation comes out ahead of the Euro CPI tomorrow (we see structural Euro deflation as a very remote prospect). Euro consumer and business confidence is a different matter however, with the media cycle seemingly more influential than the economic cycle in such matters.
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