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Sense and sensibility, and economists and the Fed

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Politics is economically unimportant in the short term – the questions that matter are whether I have a job; and whether I can afford to buy what I want to buy. The answers in the UK are "yes" and "perhaps". However, good summer weather was enough to tip the consumer into stronger spending in June.
  • US Fed President Williams suggested one rate hike this year would be sensible, and starting passive quantitative tightening this year would be sensible – i.e. the economic consensus is sensible. US President Trump nominated Quarles to the regulatory Fed Vice-Chair role. Quarles has previously advocated rules-based policy. Amidst massive structural change, rules-based policy is not sensible.
  • The data calendar is a barren wasteland. There is Italian industrial production, which markets will barely acknowledge. The US NFIB small business sentiment survey is due, but is prone to political bias from its respondents.
  • Politics is intruding. The Russian question is back (yet again) in Washington. Most Americans do not obsess about this the way market participants and politicians do. The issue, as ever, is the finite resource of political time. If politicians are making statements, retractions, and counter statements, then they do not have time to do anything else.