Reuters blog archive
"It could happen sooner than markets currently expect."
That was the bomb of a headline Bank of England Mark Carney dropped in a speech on Thursday that suggested a significant change in tone at the bank.
So far, Carney has seemed comfortable with keeping rates at a record low of 0.5 percent for another year. That has been the forward guidance markets have been following.
But are many now convinced that Bank Rate will go up earlier?
Not yet, but some.
Given that Carney's remarks come only a month after he outlined a dovish outlook for rates in the May Inflation Report, he took many by surprise, sending sterling to just under $1.70 and rallying to less than 80 pence per euro.
A 10 percent rise in sterling over the past year has already been doing some of Carney's tightening for him.
Faith that the U.S. economy may finally be at a turning point for the better appears to be on the rise, as many ramp up expectations for a better Q2 and second half of the year.
But that does not mean that interest rates are likely to rise any sooner.
Goldman Sachs’s Jan Hatzius, one of the most dovish economists on when the Federal Reserve will eventually raise rates, has lifted his growth outlook but stuck to the view that the first interest rate rise off the near-zero floor won’t come for nearly two years, in early 2016.
What is also becoming increasingly evident is that it wouldn't do much good.
Through economic research notes with titles like “ECB likely to do something next month” (JP Morgan), “ECB comfortable about acting next month” (Barclays), “ECB to act!... next month… (very probably)” (Rabobank), you get the depth of just how reluctant this central bank is to do anything, for all the talk of being ready to act.
From Turkey, which hiked its overnight lending rate by an astonishing 425 basis points in an emergency meeting on Tuesday, to India which delivered a surprise repo rate hike a day earlier, central banks are increasingly looking to "shock and awe" markets into submission with their policy decisions.
It’s nice to know Federal Reserve officials have a sense of humor about their own forecasting errors. Chicago Fed President Charles Evans was certainly humble enough to admit to some recent misses in a speech on Friday .
Still, he’s sticking to his guns, arguing that U.S. economic growth will finally break above 3 percent next year, allowing the Fed to gradually pull back on its bond-buying stimulus.
When nobody's listening, sometimes it pays to shout from the rooftops.
Based on the rupee's daily pasting, the Reserve Bank of India might do well to look to the European Central Bank's strong verbal defense of the euro just over a year ago.
In July last year ECB President Mario Draghi declared he would do "whatever it takes" to safeguard the euro's existence.
The surprising weakness in June housing starts is probably only temporary, according to Morgan Stanley economist Ted Wieseman, but the softness in June nonetheless prompted him to cut Morgan Stanley's Q2 GDP estimate to 0.3 percent from 0.4 percent.
After a 9.4 percent pullback from the February cycle high, single-family starts are now running far below the pace of new home sales. Unless sales roll over -- which was certainly not the message from the surging homebuilders' survey -- supply of unsold new homes will fall to record lows in coming months, likely spurring a sharp renewed pickup in new home construction.
If there ever was a time to discount estimates of an advance GDP report, now is the time, says Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities. That's because the first snapshot of U.S. Q2 GDP growth, due out on July 31, will occur alongside the Bureau of Economic Analysis’ (BEA) comprehensive benchmark revisions.
These revisions occur about once every five years and go back to the beginning of GDP reporting in 1929. The BEA will also incorporate research and development and royalties from film, television, literature and music into the GDP accounts. The net effect could be a 3 percent upward revision to the level of output.
As the Federal Reserve meets this week, unemployment is still too high and inflation remains, well, too low. That makes some investors wonder why policymakers are talking about curtailing their asset-buying stimulus plan. True, job growth has averaged a solid 172,000 net new positions per month over the last year, going at least some way to meeting the Fed’s criteria of substantial improvement for halting bond purchases.
So, either policymakers see brighter skies ahead or they want to get out of QE3 for other reasons they may rather not air too publicly: worries about efficacy or possible financial market bubbles.
Mark these words. Not only is Britain going to avoid a triple-dip recession, but the economy won’t shrink again as far as the eye can see.
If that sounds ridiculously optimistic, don’t tell the more than 30 economists polled by Reuters last week, none of whom predict even a single quarter of economic decline from here on.