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Divided we stand

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The Fed has been philosophically divided for some time – those divisions were apparent in the March meeting minutes, with a wide range of views expressed. The spectrum runs from "raise in April" to some (largely undefined) fear of external forces – in spite of the trend of positive global growth surprises.
  • Inflation inevitably was a focus, with concerns about core inflation above its long term average countered by concerns about inflation expectations (a little odd, as markets and consumers are useless at forecasting inflation). The maxim "don't fight the Fed" is perhaps challenged by the fact that the Fed is now fighting the Fed.
  • In Europe an overwhelming majority of Dutch votes cast in the referendum rejected a rather obscure EU-Ukraine treaty, but an overwhelming majority of voters did not vote at all. Depending on one's personal bias this is a rejection of the EU ideal, or a signal of the power of the apathetic majority.
  • The ECB March meeting minutes are due, in a nice "compare and contrast" with the Fed. The ECB is also divided. Look for insight into the signal of the policy decision (doing a TLTRO, which is a form of capital control, suggests bank lending growth is prioritised over currency weakness).