Daily update
Daily update
- The minutes of the Federal Reserve struck a hawkish tone, with lots of protestations about rates staying high until inflation convincingly declined. There are two reasons the Fed may fail to convince markets. First, since the June 2022 policy errors, there is little reason for investors to trust what the Fed says it will do with policy. Second, investors see reasons why inflation will convincingly decline. Profit-driven inflation is less sticky than wage-driven inflation, as the record breaking durable goods price disinflation has shown.
- The British have been concerned that the debacle of the Truss government might send a lasting benchmark for political farce. This concern underestimated the United States, where Representative McCarthy’s repeated failure to be elected as speaker leaves the US government without an elected House of Representatives. Markets still do not care (remember Belgium once went over a year without a government, and no one seemed to notice).
- Italian December consumer price inflation is due. The consensus is made up of too few forecasts to be really credible, but the trend in European data is for sizeable drops in inflation.
- German November exports were weaker than expected, but of course (as this is Germany) the previous month’s data was revised notably stronger.
