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A "vigilant" Fed

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Economists find markets' lack of faith disturbing. The economic consensus has long been for a gradual tightening of US rates. Markets ignored economists. The US Fed, however, is run by economists, not traders. The Fed sided with economists, and declared "vigilance" with an American accent.
  • It seems that it would take a pretty seismic negative shock to deter the Fed from a December rate increase now. Attention should shift to the pace of tightening in 2016, and here we are expecting a very slow quarter point increase every quarter.
  • Today's US GDP data is unlikely to deter Fed action. There may be some inventory led weakness, but that does not undermine the generally good levels of domestic demand in the economy. Remember that US GDP data is revised with a dramatic regularity and scope.
  • The Euro area has some October Spanish and German consumer price inflation data. The ECB is of course exercising "vigilance" with an Italian accent, and signalling an easing, but the price data today is the very start of the fading of the oil base effect.