Fed tightening as the US Treasury eases
- The US Federal Reserve is expected to raise interest rates 0.25% today. The US economy is growing at trend with full employment. Consumer measures of inflation are at or above long-term averages (consumer price inflation data is due today). Central bank policy stands out as being abnormal in a normal economy.
- Central bank policy is conducted through monetary, quantitative and regulatory channels. Comments on the tightening of quantitative policy are of most interest to investors. As the US Treasury seems committed to easing regulatory policy, this raises interesting questions for how the Fed should act via the other two channels.
- The ECB offers several speakers today. The shift in language in the ECB statement is seen as a step towards reducing the bond buying program in 2018. There is uncertainty over the speed with which that happens; today's speeches could offer a broad spectrum of views.
- UK politics intrudes with ministers from the department of getting-out-of-Europe getting out of the government – a challenge for forthcoming negotiations. Germany's Schaueble and France's Macron indicated the UK would be welcome to stay (parties advocating exiting the single market won over 80% of the vote in the UK election).