How much vaguer can a target be?

Posted by: Paul Donovan

10 Sep 2020

Daily update

  • The ECB meets. The last US Federal Reserve meeting changed a relatively clear inflation target into a relatively vague inflation target. The ECB inflation target is already extremely vague, limiting their options. The euro may attract some comment—ECB Chief Economist Lane has already commented—but compared to fair value, the euro is not abnormally strong.
  • The EU has asked for an emergency meeting with the UK today, to discuss the interminably tedious divorce process. Please do not ask economists to provide any rational analysis of a process so clearly devoid of rationality. Markets will not expect a deal until the very last possible moment (as is traditional in all EU deals). This is not the very last possible moment.
  • US producer price inflation for August will signal corporate pricing power. Consumer prices are understating inflation more than producer prices at the moment. There are plenty of relative price moves, as demand patterns shift and supply chains are disrupted, but this remains a lower inflation world.
  • French and Italian July industrial production numbers are forecast with predictably wide ranges. Production may have been held back by supply chain disruption, but as that fades and consumers continue to demand goods production should rise.

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