The absence of easing bias

Posted by: Paul Donovan

20 Feb 2020
  • The US Federal Reserve minutes showed little intention of easing policy any time soon. The last Fed meeting took place when US fear of the coronavirus had peaked (at a low level), and the risk is acknowledged. Some members advocate allowing inflation to go above target.
  • The ECB minutes are due. As with the Fed, policy-making appears to be less presidential and more collective nowadays. The main question is "when will the distorting tax of negative interest rates come to an end?". That is likely to be answered after the policy review, not in meeting minutes.
  • UK retail sales data is due, after slightly stronger inflation numbers yesterday. Sterling reacted to the inflation data, as interest rate cut expectations faded. The UK government announced an immigration policy that will reserve low-skilled jobs for UK citizens. This has long-term implications, but is not a market focus.
  • German producer price inflation, as a signal of the pricing power of German companies, is worth looking at. A business sentiment opinion poll (the Philly Fed) is due in the US. However, when the media cycle is dominated by a big story like the coronavirus, sentiment surveys have a bad record of reflecting reality.

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