Symmetry and precision

Posted by: Paul Donovan

26 Feb 2020
  • US Federal Reserve Vice-Chair Clarida commented that the Fed's symmetric inflation target meant spending time above as well as below 2%. Central bank policy is not precise. Economic data is not precise. Anywhere between 1% and 3% inflation could be considered "on target". Having a point inflation target is just an example of economists' sense of humor.
  • The interminably tedious EU-UK divorce process continues. EU negotiator Barnier was demanding common rules and access to cod. UNCTAD published a report reiterating what every economist knows – non-tariff barriers to trade are a big issue. Even with zero tariffs (an optimistic idea), UK exports to the EU are projected to fall because of these barriers.
  • There are four ECB speakers, including ECB President Lagarde. Lagarde is not leading the economic discussions at the ECB, so the collective views need to be considered. The question is whether the ECB will signal the end of its financial tax (aka negative rates) at some point this year.
  • The data calendar is quiet. This risks traders trying to remember their high school biology studies and assume medical knowledge about viruses. The market consensus tends to overestimate the economic downside and underestimate the economic recovery of large shocks.

Explore more CIO Daily Updates