Daily update
Daily update
- The Federal Reserve is not expected to change policy. Fed Chair Powell (not an economist) is unlikely to apologize for past policy errors. The Fed chair might try to take undeserved credit for the rapid US inflation slowdown.
- Fed rate hikes have not visibly slowed consumer credit growth, or increased unemployment (fortunately). Fed rate hikes might, very marginally, have aided with the erosion of profit-led inflation. US inflation slowed from 8.1% y/y to 3.4% y/y because it was naturally going to slow. US inflation will slow further in 2024 because the fiction of owners’ equivalent rent is naturally going to slow. Some Fed rate hikes were needed, but later hikes likely had little effect on inflation (though they did impact inequality).
- What next? The Fed does not want rising real interest rates, which would compound past policy errors. Expect the Fed to bring policy rates lower as inflation falls (probably with a lag, implying a May cut).
- Portugal, Germany, and France offer preliminary January consumer price inflation numbers. German December import prices fell more than expected, and yesterday’s UK BRC shop price inflation slowed significantly. This may hint at downside risks. German retail sales were weak but, of course (this being Germany) the previous month’s data was revised stronger.
