Playing around with policy
- After US core inflation followed the trend of other economies in drifting a little higher, again, we have the Euro area offering its inflation data today. There is no reason for the Euro area to mimic the US, as inflation (especially core inflation) is largely a local phenomenon.
- Fed President Mester was urging rate hikes sooner rather than later. Four members of the Fed do not favour rate hikes this year – they have all spoken since September, and we know who they are. Every other Fed member favours a rate hike this year, and those that have spoken have made that clear.
- The US data today is capacity utilisation and industrial production, along with Michigan consumer sentiment. Sentiment data is always prone to overreact, but the signs of a strong labour market approaching or hitting capacity for skilled workers suggests sentiment support.
- We have shifted our call for the RBA in Australia – arguing for a rate cut but an unchanged policy position. We think a rate cut is possible because regulatory policy change seems to be tightening credit conditions. It is a reminder that central bank policy rests on regulatory, quantitative and monetary positions.