The Fed does not set incomes

Posted by: Paul Donovan

29 Jul 2020

Daily update

  • The US Federal Reserve concludes its two-day meeting. For the economy, there is a limit to what the Fed can do. The Fed's control of the price of money has some impact on incomes of significant savers and significant borrowers, but it does not directly impact the incomes of most people. The current situation is all about consumer incomes, which is why fiscal policy is so much more important.
  • US wholesale and retail inventory data for June are of interest. The idea is that consumers rushed to spend accumulated savings as lockdowns eased, but that production will have taken time to catch up. That will show up in falling inventories (implying the consumer boost late second quarter only translates into a GDP boost in the third quarter).
  • Spain and Portugal offer retail sales data, giving some more signals (if only vague signals) as to the response of consumers and lockdowns eased. UK consumer credit numbers are also due.
  • Inflation data continues to point to a generally disinflationary environment. The UK BRC shop price index showed rising food prices and falling prices for everything else (with the standard warnings about poor data quality from surveys). This is a common story in developed markets.

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