Lashing quantitative policy to the mast
- Fed Chair Yellen's cunning plan has been revealed in detail. The passive tightening of quantitative policy through a staged reduction of the balance sheet has been preannounced. Even if Yellen's term as chair is not renewed, the future Fed chair will struggle to break free from the restraints of a staged tightening.
- US interest rates were hiked 0.25% with signals of a further rate hike in the second half of this year. Yellen was dismissive of recent volatility in inflation numbers – the Fed is interested in trends as monetary policy lags mean today's actions influence inflation at the end of 2018.
- The Bank of England decides policy today. Her Majesty's government is creating quite a lot of uncertainty so there is little prospect of policy action. UK retail sales are due – the UK consumer is constrained by inflation, and past spending was savings financed which cannot continue.
- French final consumer price inflation is not likely to attract much attention. There are a couple of US business sentiment opinion polls due. The tendency of these surveys to exaggerate underlying economic trends still holds; any correction should be considered a normalization not an economic signal.