For many years in a row, since a form of feeble recovery began from the worst financial crisis in more than 80 years, a similar pattern of déjà vu has set in for the U.S. economy.
Fed officials say they will be “data-dependent” when it comes to making monetary policy. San Francisco Fed President John Williams feels so strongly about it, he’s even printed up a T-shirt to get that message across. But truth be told, data-dependency is not as objective as it sounds. Data doesn’t dictate policy; it’s the interpretation of data that’s key. What is rate-hike-worthy data to one policymaker is keep-the-pedal-to-the-metal data for another. Take, for instance, U.S. GDP growth. Richmond Fed President Jeffrey Lacker says he expects GDP growth to average 2 percent to 2.5 percent this year, a pace that would justify a Fed rate hike in June. Chicago Fed President Charles Evans expects 3 percent growth this year, and does not believe even that would justify a rate hike until the first half of 2016. So what does it tell you about monetary policy if you see GDP growth of 2.5 percent? Not a whole lot, judging from these two. And the statements of other Fed officials are hardly more helpful. Indeed, as Atlanta Fed President Dennis Lockhart said recently, “I don’t think it is advisable to approach such a decision with rigid quantitative triggers in mind.” Watch the data, sure. But don’t assume the data will tell you much about the exact timing of the rate hike. Monetary policy – it’s subjective. Maybe some policymaker will print that on a T-shirt.
The U.S. Federal Reserve may find it even more tough to raise interest rates as the year wears on if dwindling expectations for growth are any guide.
Expectations may have been pushed to later this year for when the U.S. Federal Reserve will hike interest rates, but a repeat of another steep sell-off in emerging market stocks appears unlikely as much has already been priced in – and because of the stronger dollar.
Currency concerns in the central banking world have come to the fore again.
Sweden cut interest rates further into negative territory out of the blue last week, fearing its strong currency will engender deflation. The Swiss National Bank said it would aim to weaken what it sees as a “significantly overvalued” franc. And the Bank of England flagged the risk that sterling could strengthen further and leave inflation below target for longer.
Not for the first time, Benjamin Netanyahu has defied the odds and snatched electoral victory from the jaws of defeat.
Israeli opposition leader Isaac Herzog has just conceded although he has not given up hope of forming a coalition government if Netanyahu fails to.
The evidence clearly shows that the U.S. job market now is consistently beating rising expectations, which should give pause to those doubting an interest rate rise is coming from the Federal Reserve later this year.
Despite the Federal Reserve’s trillions of dollars in newly printed money, workers’ wages and overall U.S. inflation have failed to take off since the recession. Longer-term borrowing costs, from 10-year Treasury yields to 30-year home mortgages, have also compressed without any real signs of reversing. While this has perplexed many economists, transcripts of the U.S. central bank’s crisis-fighting meetings in 2009 show that Janet Yellen, then the head of the San Francisco Fed, was prescient in warning colleagues of these very problems.