Daily update
Daily update
- The Federal Reserve left rates unchanged (quantitative policy continues to tighten). Fed Chair Powell implied higher rates for longer at the press conference, but investors have little (or no) reason to trust Powell’s forward guidance. Data, rather than pontification, will guide expectations.
- The curse of the dot plot marred the policy presentation. The Fed’s dot plot charts lack subtlety and complexity. A individual member’s 50:50 call on a rate increase is presented as an absolute certainty. In theory, a majority of the Fed think rates could rise one more time. This likely overstates the conviction. Subdued inflation and softer employment mean future US tightening should be by quantitative policy and real rates—nominal rates do not need to go higher.
- The Bank of England decision today is a difficult call. Yesterday’s data shows profit-led inflation under pressure, but some of the inflation drop was due to volatile components. Economic growth has been revised significantly stronger, but that also means labor costs should be lower. If I had a vote (I haven’t been made governor yet), it would be for unchanged policy, but that may not be the majority decision today.
- Elsewhere, there are US initial jobless claims and the Philly Fed business sentiment poll. Sweden and Switzerland also offer rate decisions.
