Talking calmly

Daily update

In the unnecessarily uncertain world of US monetary policy, we heard from Federal Reserve Governor Waller. Waller signaled a desire for unchanged policy, as disinflation forces seem to continue. If disinflation ceased, then Waller would reconsider. This is similar to New York Fed President Williams’ outlook. These two Fed members command more respect than some other Fed members, and their words moved markets.
The Fedspeak does perhaps place too much emphasis on near-term data, particularly today’s US employment report and next week’s consumer prices. A single data point can be distorted and will doubtless be revised. Today’s labor market data is not expected to signal second-round inflation risks. The labor share of the US economy hit a record low in the second quarter. It seems unlikely that US workers feel emboldened to demand inflation-busting pay increases, in spite of the affordability crisis. This is not 2022.
German July factory orders were strong, with (inevitably) positive revisions to past data. The trend has definitely been toward improvement.
There are a couple of other central bankers speaking today, namely ECB Chief Economist Lane and Bank of England Governor Bailey. The ECB is expected to compound its earlier policy error and raise rates again, but hopefully will stop after making two mistakes.