Do the locomotion with Jay
- On 6 September 2016, US presidential candidate Trump accused the Fed of deliberately keeping rates too low for political reasons. The real fed funds rate was -0.6%. The latest unemployment rate was 4.9%. Yesterday, US President Trump described the Fed's interest rate policy as the main threat. The real fed funds rate is -0.05% (-0.7% in August). The latest unemployment rate is 3.7%.
- The Fed is not loco. Keeping negative real interest rates at a time of full employment would be loco. The risk is that the US president undermines Fed independence. Central bank independence is the main reason inflation was brought under control globally. Alternatively, the Fed may feel it has to prove its independence, and adopts a hawkish bias in order to do so. For now, expect the regular motion of hike, pause, hike, pause.
- EU heads of government meet. UK Prime Minister May is likely to offer the EU access to the whole UK customs union, on a temporary basis. No deal will be done until the last minute. We are several weeks away from the last minute.
- UK inflation in its various forms is due, as is EU inflation. However, inflation is not really a market focus at the moment.