Daily update
Daily update
- The Federal Reserve announced a slower pace of shrinking its balance sheet. Context is important here—quantitative policy is about the balance between the supply of and demand for liquidity. Demand for liquidity was slowing significantly after the pandemic, requiring the Fed to shrink its balance sheet to match. Liquidity demand is now slowing less, so the Fed’s balance sheet can shrink more slowly.
- The Fed’s statement noted a lack of progress toward the 2% target. Most inflation measures are within a reasonable range, and the market-based core PCE deflator (the inflation measure Fed policy actually has some influence over) continues to slow. It is hard to know what “higher for longer” is supposed to achieve. It is unlikely to bring down owners’ equivalent rent, or motor insurance, or medical inflation.
- The OECD publishes the economic outlook. As with most international organizations’ forecasts, markets will have priced in the economic narrative several months ago. This is mainly a media and political event.
- US productivity data is due, but is just a residual from GDP calculations (unit labor costs are a derivative of that residual). Productivity in the real world, in the sense of “are workers producing more output”, is different—and probably strengthening with flexible working, automation, etc.
