Damned if they do, Damned if they don’t
President Donald Trump has the luxury of “bending in the breeze” changing his mind on policy as the “fancy takes him”.
A prime example has been his attitude towards the Fed, criticizing them for acting too slowly to “normalize” monetary policy, then wishing they would slow the pace of rate hikes to allow the economy to grow.
Unfortunately, Janet Yellen, the Fed Chair, doesn’t have that luxury. She, in conjunction with her colleagues, must make decisions and stick by them through, sometimes rough, justification testimony.
Such a dilemma is approaching as the Fed meets on June 13/14 to decide upon a rate hike. As is her style, Mrs Yellen has given advance guidance to the market commenting that any hike in June would be determined by the path of economic data. Friday’s employment report has simply added to her woes. 138k new jobs were created in May below the markets mean expectation of 180k. The April number was revised downwards by 17.5% from 211k to 174k. Wages growth remains sluggish at 2.5% YoY although the unemployment rate fell from 4.4% to 4.3%.
A rate hike is still considered likely next but a pause for the rest of the year is now priced in to allow the effect of three hikes in six months to feed through into the economy.
Election call not the most sensible
When she called the election, which will take place this Thursday, Theresa May’s motives were roundly questioned. Was she really acting in the best interests of the country? Did we need the affirmation of a strong Government to enter Brexit negotiations on the front foot? Or, was it simply a thinly veiled attempt to take advantage of a seemingly invincible and growing advantage over her rivals?
Whatever the reason it hasn’t gone entirely as expected or hoped for. Opinion polls, not the most reliable of sources admittedly have shown a distinct move away from the ruling Conservative party as their lead has been cut from twenty five percent plus to a meagre five or six percent now. For an incumbent Government at this stage of a Parliament that is not bad. But for a party fighting an election, it is bordering on calamitous, particularly since the problem is of their own making!
Sterling has fallen consistently over the course of the campaign against a Euro which has been buoyed by political stability in the Eurozone. The French election following on from the Netherlands has given Brussels a boost.
Euro gaining as politics and economy shine
With Germany likely to return Angela Merkel to power for a fourth term, the political outlook for the Eurozone is looking bright. There is a slight concern over Italy and the possibility of an election bringing a hung Parliament but that will be a minor worry.
The economy is beginning to grow at a consistent pace. Mario Draghi, the ECB President is still playing down the prospect of the withdrawal of special assistance or a rate hike. This Thursday the Governing Council of the ECB meets and although no hike is on the cards, it will be interesting to listen to how Sr. Draghi sees the economy.
It has become normal for Central Bankers to give advance guidance of their thoughts; Draghi has lagged Yellen and BoE Governor Mark Carney but his thought will still be viewed with expectation.
Terror returns to London Streets
Today’s final word must go to the Emergency Services and people of London yet again stoically standing up to a terror attack. This is not the place for political speech or an opinion on the reasons why this is happening. It is enough to say that such cowardly actions have no place in civilized society
