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The Russian question

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The initial shock of US President Trump's firing of the FBI director is fading. Markets are now focusing on another demonstration of presidential unpredictability, and the idea that Congress may become bogged down in the Russian question. The latter would slow other legislative initiatives.
  • Central bankers have been more predictable. US Fed President Rosengren was calling for three further rate hikes this year to combat "overheating". We believe two rate hikes are more likely, with accelerated quantitative policy tightening being announced this year as well.
  • ECB President Draghi has not, it appears, started his twelve-step program to overcome his addiction to easing. Comments before the Dutch parliament stressed that quantitative policy would continue for now. Draghi was presented with a plastic tulip as a reminder of the consequences of bubbles brought on by irrational behavior.
  • The Bank of England meets (no change expected), and the inflation report is published. One problem with predicting future action is the growing number of vacancies on the monetary policy committee (MPC). As there is a tradition of intellectual independence on the MPC, not knowing its membership makes predicting future actions more difficult.