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No Fed lift off (just a Fed rate rise)

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US Fed President Bullard suggested a greater than 50% chance of a US rate increase in September (that is the UBS forecast, so it is nice that he agrees with us). Media reports describing it as a "lift off" are of course wrong – the Fed has been at pains to stress the lack of a rocket-like trajectory to US rates.
  • The Bank of Japan minutes said little, observing inflation was on an improving trend. Japanese CPI has slumped to below consumption tax hike levels. Corporate goods prices ex the consumption tax have slumped into deflation. Earnings growth is negative. The BoJ might want to check its definition of "improving".
  • The Reserve Bank of Australia was complaining about the currency, again. The problem is not really the currency, so much as the fact that the overall structure of the Australian economy has become overly dependent on a single buyer (China) that does not want to buy (housing bubble over).
  • China itself saw a further moderation of foreign direct investment inflows. This is worth some attention, in part because foreign exchange reserve accumulation in semi-fixed exchange rate regimes is more about offsetting capital flows than it is about offsetting current account surpluses.