The day before the decisions are made
- Markets are likely to pause before tomorrow's central bank decisions in Japan and the US. The contrast between the central banks is a reminder that in spite of peak globalization (real trade to GDP is at an all-time high), local factors are still around three quarters of the global economy.
- The US Federal Reserve remains independent (albeit with that independence threatened). Bank of Japan independence can be questioned. The Fed has been organically tightening quantitative policy for two years, the BoJ easing. The Fed should raise rates – the BoJ will not.
- The irony is that the Japanese economy has higher inflation expectations than does the US economy – in the area that can matter economically. This is not (obviously) market expectations of inflation, but consumer expectations of inflation. Inflation fears diverge differently from policy expectations.
- Elsewhere the Germans are offering producer price inflation. This is a better indication of corporate pricing power than is consumer price inflation; companies tend to sell to other companies, not to consumers. The US has assorted housing data items released, but markets will focus on tomorrow's central bank meetings.