Low, as far as the eye can see

Posted by: Paul Donovan

11 Jun 2020

Daily update

  • The Fed signalled low rates for as far as economists can see (out to 2022). This is not much of a surprise, given that the US economy is likely to have spare capacity and thus low inflation for some time. Fed Chair Powell signalled that the Fed was not focused on asset prices. To target asset prices and consumer prices at the same time would be contradictory.
  • US producer price inflation is due (a better indicator of corporate pricing power, although the data still has quality problems). With spare capacity continuing in the US economy, this is likely to show disinflationary forces. Individual prices may rise, but the general price level is likely to be subdued.
  • Italian April industrial production covers the most severe part of the lockdown. The consensus range is -25% y/y to almost -50% y/y. The consensus is thus not especially useful to anyone.
  • The OECD published forecasts yesterday. The OECD is not, perhaps, the most timely forecaster in the world. The economic bounce-back will be driven by animal spirits as much as anything else, making precise forecasts very unreliable. The OECD's use of decimal points in its forecasts must be considered to be an unexpected case of whimsical humor.

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