Daily update
Daily update
- The minutes of the last Federal Reserve policy meeting (which raised rates by 0.25 percentage points) will be closely examined for any possible hint as to future policy direction. We know that the Fed is data dependent, but the question is what data? And does the Fed really trust the numbers?
- What has been missing throughout the Fed’s tightening cycle is a clear narrative as to what rate hikes will achieve. Rates were never going to influence the durable goods inflation of 2021 (and that has plunged into deflation anyway). Fed Chair Powell’s influence over the war in Ukraine is nil. Rates are a clumsy way of tackling profit-led inflation. We hear from New York Fed President Williams today.
- The UK government is reportedly considering a 5% public sector pay increase. This is negative in real terms, and public sector wage costs do not generally translate into higher prices. The boost to demand would likely be limited. ECB President Lagarde spoke (of course) suggesting pay deals should be watched closely. Lagarde has not suggested profit expansion that has led recent inflation should be scrutinized as closely.
- German final consumer price data for January was unchanged (it almost never changes, so markets do not care). The German ifo business sentiment poll is due.
