Follow Paul Donovan

Falling in love with policy tightening

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The Fed’s doing it. The BoE may do it. Even Draghi of the ECB could do it. Central bankers are falling in love with policy tightening. Central bankers are run by economists (the more things economists run, the better the world is) and economists are swayed by trends, not by short-term data noise. 
  • Revised policy expectations have helped the euro to strengthen. This does not mean the euro is strong (it is stronger, not strong). It does not threaten Euro area growth. A currency move like this may impact profit margins, but is unlikely to impact the import and export volumes that determine real GDP.
  • Spain and Germany produce consumer price inflation numbers – and this will be a good opportunity to ignore noise (oil prices may weaken the headline) and concentrate on the trend (inflation is normal). Confidence data is also due from the Euro area.
  • US revisions to first-quarter GDP are due (again). This just serves as a reminder of the dangers of reacting to initial data releases. GDP was initially reported at 0.7% annualized, and subsequently the rate of growth almost doubled to 1.2%.