Author Archive

Is the Fed too focused on corporates?

The Federal Reserve (Fed)’s leading priority now is to help sustain the US business cycle, hence the concept of ‘insurance’ rate cuts put forward by Fed chairman Jerome Powell, with some echoes of Alan Greenspan’s philosophy in the 1990s. Low Fed interest rates tend to percolate quickly down to the corporate sector. Indeed, low borrowing […]

Powell’s Congressional testimony sets the scene for rate cut

During his testimony before the House of Representatives on Wednesday, Federal Reserve Chairman Jerome Powell repeated the dovish signals he gave at the Fed press conference in June, hinting at a rate cut at the next Federal Open Market Committee (FOMC) meeting on 31 July. Powell’s priority is to preserve the economic expansion, now 10 […]

Fragile truce in Osaka

The US and China leaders agreed on a truce during their much-anticipated meeting at the G20 summit in Osaka this weekend. Bilateral trade talks will restart. Trump put to bed the threat of additional tariffs, although the existing tariffs on roughly half of Chinese imports will stay at 25%. Importantly, Trump did not specify a […]

Fed update – Driving under the (political) influence

The role of politics including President Trump’s pressure to cut rates (and his call to dismiss Powell) and the anxiety ahead of the G20 summit on 28-29 June – particularly the crucial Trump-Xi meeting – has been even more impactful than we expected (we were wrong!), leading Chairman Powell to signal more firmly an imminent rate cut. This […]

The Fed talks the talk, but in no rush to cut

  The Fed should remain on hold on 19 June, but Chairman Powell is likely to mention the possibility of cutting rates in the coming months, especially if trade tensions continue. Potential monetary easing would be framed as ‘insurance’ rate cuts, similar to those pushed through in 1995 and 1998, mostly to backstop confidence in […]

Tory Brexiteers likely to be galvanised by Euro parliament results

The European Parliament elections produced mixed results in the UK and do not seem to offer a clear path out of the current Brexit limbo. Nigel Farage’s Brexit Party came first, while the Tory (Conservative) party suffered heavily. This is likely to induce a new Tory leader to adopt a harder stance on Brexit in […]

US-China trade: New tariffs – watch the second derivative

The direct macro cost on the US economy of the raised tariffs to 25% from 10%, and the fresh counter-tariffs from China, should be limited in our view, at around 0.1% of US GDP. The US economy tends to be much more sensitive to financial conditions than to the narrow question of the tariffs’ impact […]

Fed meeting preview: Play it again Sam

The Fed meeting concluding on 1 May should provide only limited new information. The domestic growth backdrop is good and equity markets are buoyant, but low core inflation and the proximity of the theoretical ‘neutral rate’ will likely stifle the Fed’s temptations to raise rates. Instead, the Fed should signal it is happy to stay […]

Business cycle could define Trump’s re-election chances

As we move closer to the 2020 presidential election, Donald Trump has been blatantly leaning on the Federal Reserve to be more accommodative and has been trying to appoint nominees to the Fed board who share his preference for loose monetary policy. The countdown to the 2020 elections also seems to be prompting Trump to […]

The US labour market chugs along

US employment rose by 196,00 in March, bringing the three-month average to a healthy 180,000/month— less than the 2018 average of 223,000, but more than in 2017. The unemployment rate was unchanged at 3.8%, below the Federal Reserve’s (Fed) ‘full employment’ estimate of 4.4%. Wage growth softened to 3.2% year-on-year (y-o-y) from 3.4% in February. […]

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