Yellen’s decoupling of data still to convince FOMC
Janet Yellen the Chairman of the Fed has been speaking of the need for the FOMC to be more proactive in changing monetary policy to be prepared for any upswing in inflation and the U.S. economy in 2018. In keeping with this proactivity, she has talked of removing data dependency from future rate hikes.
Several of her colleagues on the FOMC remain unconvinced by the need for a pre-emptive rate hike in December and such a decision is not as cut and dried as the market may think Fridays inflation data did nothing to paint a clearer picture. The headline was higher because of the effect of the recent hurricanes on oil production but the trend is unchanged with price rises benign at best.
The future path of inflation is confounding those who have been calling for the shrinking of the Fed’s balance sheet, which will commence next month, as the theory hasn’t been matched by the fact! There will be two more employment reports before the December FOMC meeting so there will be ample time to see if wage inflation is starting to pick up. The 0.5% seen in September was above both analyst’s expectation and the previous report.
May heads to Brussels as she becomes more “hands-on”
The British Prime Minister, Theresa May faces an awkward time as she attends an EU summit at the end of the week where the future relationship between the EU and U.K will be discussed. There’s been talk of a softening of the tone of EU rhetoric with the possibility of a proposal for talks to move to stage two.
Unfortunately for Mrs May it seems that Brussels will propose the start of talks immediately the U.K. agrees the amount it will continue to pay into the EU budget post-Brexit. The Prime Minister has clearly decided to meet her Brexit detractors head on, taking a more proactive role in the negotiations. She will meet with Chief Negotiator Michel Barnier and EU Commission President Jean-Claude Juncker for talks before she faces the awkward situation of the weekend summit.
Sterling has been buffeted by the twin headwinds of Brexit and the economy and with any hike in rates being criticized by analysts support from monetary policy may be set to wane. With a rate hike 75% priced in, Sterling could fall back to well below the 0.9000 and 1.3000 levels should the MPC remain on hold.
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Austria elects youngest leader.
Sebastian Kurz was Austrian Foreign Minister aged just 27. Now aged 31 he is set to become the world’s youngest Prime Minister. Kurz’ People’s Party is set to be the largest Party in a coalition which will include the Far-Right Freedom Party who accused Kurz of stealing a number of their policies, particularly around immigration, about which Austria is about to get far tougher which will set it on a collision course with Brussels.
Following Brexit, the German election and the Catalan secession vote the EU is beginning to face several political problems which illustrate perfectly the haste with which the region as tried to become more integrated. Following the election of Emmanuel Macron in France there have been calls for closer integration over such issues as fiscal policy and defence but until the lurch to the right particularly in the eastern part of the region has abated, a period of consolidation will be more prudent. Financial strain will become more acute as the British contribution to the EU budget disappears. This will likely exercise the mind of the French President as he will be expected to fund a greater share of the financing.
