Daily update
Daily update
- Financial markets had the right reaction for the wrong reasons to the Federal Reserve interest rate decision. Certainty about US rate cuts has increased. This should be driven by the details of inflation data, which show clear disinflationary forces. It should not be dependent on the crude, almost vulgar abuse of economics that is represented by the fabled dot plot projections.
- One thing investors might take away from the whole Federal Reserve circus is that policy makers seem to believe the trend rate of US economic growth has risen. There is an expectation for higher growth without meaningfully higher inflation, and a need to cut rates. Labour market tightness seems more mythical than real, and changing working and consumption habits might raise trend growth—economic evidence for productivity gains from flexible working is quite clear, for instance.
- The Bank of England lies ahead—a proper central bank with proper dissent and discussion. No policy change is expected, but the number (and direction) of dissenters may shift. Rate cuts are coming, but the timing remains uncertain.
- There are a variety of business sentiment opinion polls. Sentiment has tended to be too pessimistic – why go through the considerable hassle of filling in a survey unless you want to complain about something?
