Daily update
Daily update
- Federal Reserve Chair Powell’s communication confused markets. A slower pace of rate hikes with a hint that tightening could slow before inflation fell dramatically seems dovish. But Powell channelled 1920s New York Governor Strong with promises of a higher terminal fed funds rate. Markets eventually focused on the hawkish tone.
- The Federal Reserve comprehensively trashed forward guidance in the June policy errors. As such, the future policy promises should be treated with caution. A more dramatic slowdown, or a more rapid drop in inflation, could make the terminal rate talk meaningless.
- The Bank of England rate decision today is different, even if the expected 0.75pps rate increase is the same. The bank is headed by an economist who has not trashed forward guidance. The UK faces a rapid slowdown (from the Truss credibility premium), and the bank knows some things the markets does not about this week’s government’s fiscal plans.
- Russia has signalled an aversion to nuclear conflict, and an recommitment to the UN grain shipment deal. North Korea has fired of 23 missiles to remind everyone they are really the international “bad boy.” The grain deal is the what markets are likely to care about. Markets tend not to price extreme geopolitical risks.
