Novelty, not accuracy, excites markets

Posted by: Paul Donovan

12 Dec 2019
  • The US Federal Reserve's fabled dot plot signalled unchanged rates in 2020. The dot plot for 2019 was utterly wrong, but markets prize novelty over accuracy and so got excited. Fed President Powell (a lawyer, not an economist) tried to talk economics at the press conference. Markets were left assuming policy will be stable for a spell.
  • The Fed's policy is not much more accommodative than it was in late 2007. Real consumer savings rates have fallen, but not very much (using a real world inflation measure). Real consumer borrowing rates have risen for credit cards, and are only modestly lower than 2007 for other borrowing.
  • The UK election finally takes place. Currency and betting markets seem to expect a Conservative majority. These markets are plutocratic. UK voting is democratic. There are lots of uncertainties. The only certainty is that the Brexit process will remain interminably tedious, one way or another.
  • It is the first ECB meeting led by President Lagarde (a lawyer, not an economist). There are some final inflation figures and Euro industrial production data due. Former ECB Presidents Duisenberg and Trichet met their inflation targets, Draghi did not - something Lagarde may ponder when reviewing which Euro area policies work.

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