The lesser of two evils

Daily update

Yesterday’s unanimous vote in favor of a US interest rate increase could be interpreted as defiance against political interference. Having raised once, the Federal Reserve is likely to raise again—to prove this rate increase was intentional and not a mistake (even if it was a mistake). The rate increase has no near-term impact on inflation or economic growth.
The rate increase is a challenge for US Treasury Secretary “House” Bessent. Bond yields are at levels that imply a contempt for recent Treasury maneuvers. The yen weakened because fundamentals beat intervention. In the long term, fundamentals win out (which is why economists are always right, and markets are just out of sync with our forecasts.
The Bank of England continues the central bank fun, and is expected to leave interest rates unchanged. There is no need to express political defiance, although the nature of the monetary policy committee is likely to express disagreement (it always does).
ECB Chief Economist Lane is set to speak, with markets debating whether the bank will be content to stop at two policy errors. The ECB has not signaled a desire to create a recession in the non-oil economy (the only real way a central bank can counter the inflation of an oil shock).