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Spinning curves

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US Federal Reserve Chair Yellen was keen to signal that the Fed is not behind the curve. And if the Fed is behind the curve, the Fed Chair knows that in the new abnormal it is all about spin rather than substance. The issue of increasing the current pace of quantitative policy tightening was postponed.
  • Yellen's shift in tone may owe something to the fact that low-skilled Americans started to get pay rises around the second quarter of last year. Conditions for low-skilled Americans have been a focus for Yellen, and the tightening labor market also adds to inflation pressures.
  • Spanish final consumer price inflation is due today – relevant because the initial figure was reported as 3%, over one percentage point above the rather absurdly ill-defined ECB inflation target. UK price data yesterday showed the consumer is somewhat shielded from sterling's weakness; labor market data today will signal if the economy's cyclical strength can persist.
  • The US offers consumer price inflation – both headline and core – is expected to exceed 2% y/y. The fact that household income growth is strong should allow the Great American Consumer to continue to indulge in their national pastime (visiting the shopping mall). Retail sales data should confirm this.