The perils of printing too much money

Posted by: Paul Donovan

01 May 2019
  • Europe is celebrating workers by not working. The US Federal Reserve is working. With US growth above trend, the labour market strong, employment costs rising at nearly the fastest pace in a decade, and inflation normal there is no incentive to change policy. The language of the statement is the focus. US President Trump urged a 1% rate cut and massive money printing. The Federal Reserve is unlikely to do this.
  • Venezuela has seen past interest rate cuts and massive money printing. The ensuing, inevitable hyperinflation destabilised the economy. Yesterday there was an armed challenge to the president. The president still seems to be in office. Venezuela's economy is cut off from the rest of the world, so this should not impact markets.
  • Korean exports and imports were better than expected. Global trade should stabilise as global investment spending stabilises. Invest stabilisation depends on reducing uncertainties about trade. Hopes for a US-China trade deal remain high, as the US appears to be offering yet more concessions to get a deal.
  • UK credit data is unlikely to excite markets. The UK opposition Labour Party has reaffirmed its position in favour of leaving the EU, without committing to a further referendum on the subject.

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