Daily update
Daily update
- Federal Reserve President Kashkari has advocated a significant tightening of central bank policy, by raising real interest rates (keeping nominal rates stable as inflation slows). The pain of this would likely hit lower income groups disproportionately. Kashkari’s wants to keep inflation expectations anchored—yet inflation expectations are properly observed through consumers’ actions (certainly not through surveys). Moderating wage growth suggests well-anchored expectations.
- The ECB is expected to cut interest rates this week. European inflation is the same as US inflation (measured in a comparable way), and the cumulative price change since the pandemic is very similar. A critical difference is, perhaps, the politicization of inflation. In Europe, there have been calls for subsidies and criticisms of profit-led inflation, but inflation is seen as a central bank issue. In the US, the issue is a lot more political, with attempts to directly blame the government for price moves.
- The central bank narrative this year has not changed. Central banks should stabilize real rates (Kashkari notwithstanding) and follow inflation lower. The uncertainty has come from which inflation measure to monitor, not the general central bank philosophy.
- The data calendar contains little of any use—there are only some business sentiment polls. Japanese first quarter corporate data showed weak investment but stronger profits.
