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Trust economists, not yield curves

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The minutes of the November US Federal Reserve meeting are due. The Fed has essentially hit its inflation target – at least inflation is no reason not to raise rates. Growth is around trend, and there is full employment. Market expectations of a December rate increase should be reinforced by the minutes.
  • Some journalists have dredged up a half-remembered economic theory to suggest the flat US yield curve signals an imminent recession. Fortunately, yield curves do not predict recessions. They especially do not predict recessions when inflation is low and financial repression is high. There is very, very little prospect of a US recession in 2018.
  • The UK government presents a budget. No one outside of the UK cares. However, media reports suggest that an agreement to proceed with the divorce from the EU could happen within three weeks. Markets do not care about the tedious details of negotiations, but they do care about the big picture – and progress in December is important.
  • German coalition negotiations continue, with the president chatting with assorted parties. Some commentators are calling for the CDU/SPD grand coalition to continue (the grand coalition is still in office). One opinion poll suggests that the voters want another vote.