Kicking the can down the road (US style)

Posted by: Paul Donovan

20 Aug 2020

Daily update

  • The minutes of the July US Federal Reserve meeting were almost European in their nature – there was a lot of kicking the can down the road. It reads like the FOMC wanted to go on holiday, and they would deal with forward guidance, the policy framework, etc. when they returned.
  • The Fed minutes were quite clear on inflation – it is expected to stay low as the demand shock of the pandemic will outweigh any supply chain disruption in terms of price effects. This is not likely to be a surprise to anyone, with investors convinced central banks will stay with "lower for longer" on rates. German producer price inflation is due today – as ever the forecast range for this is very wide.
  • US President Trump has ordered the US to reimpose UN sanctions against Iran, even though the US withdrew from the relevant UN agreement two years ago. Directly, this does not matter much to markets. The unpredictable nature of this action might matter to investors in the future.
  • US initial jobless claims are due. The numbers have been trending down, of course, but the economic consequences of claims are larger than they were – because the loss of additional unemployment benefit increases the cost of being jobless.

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