Three central banks, three different directions
- The US CPI yesterday was unexceptional but the media (and to some extent the market) reaction to it was telling. The ending of the oil base effect was on display, and core inflation rose a little further. The past disinflation psychology was not evident in reaction.
- The release of the US Fed minutes provides the excitement for the day ahead. December is not the focus, as markets have finally come to their collective senses and expect an increase. Rather the tightening cycle of 2016 – monetary and quantitative – is the more urgent concern.
- The ECB is proffering assorted speakers, with Praet yesterday making additional accommodative noises. It is not like the ECB has much choice, Draghi having managed market expectations so that to fail to ease would be to risk an adverse reaction.
- Japanese policy is also under discussion, against the backdrop of another negative quarter of growth, but the Bank of Japan has to weigh whether central bank accommodation would offer stimulus to a nation of savers. Fiscal policy seems to be the favoured stimulus option for now.