The euro zone is not deflating, it’s just at risk of a too-prolonged period of low inflation, says European Central Bank President Mario Draghi.
Judging by recent evidence, it might be very prolonged, which is bad news for an economy struggling to shift out of low gear.
Bank of England Governor Mark Carney shocked markets last week, saying interest rates could rise sooner than expected.
At first glance, the latest UK inflation data suggest they might not.
Inflation has nearly halved to 1.5 percent in May from 2.9 percent last June. And wage inflation is much lower.
“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.
Results are in from the latest Reuters poll on Canada’s rampant property market from economists and market analysts, and the message is everything’s fine.
Prices will rise gradually over the next few years and there is very little risk of a crash.
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.
The European Central Bank cut rates as low as they will go on Thursday and announced another round of cheap cash for banks, hoping the euro, which has helped knock down inflation in the fragile euro zone economy, will fall.
The May U.S. non-farm payroll report on Friday may be a much less volatile affair than last month, when shock news of 288,000 new jobs topped even the most optimistic views.
This time, there is more certainty around a less spectacular but still solid outcome, based on an analysis of forecasts from the most accurate economists in Reuters polls on recent U.S. data.
What is striking is how many analysts and money market traders alike think the net result will be neutral at best.
There was no more talk of “forward guidance”, but the guidance was pretty clear: no change to the view, on track for a first rate hike in a very gradual series, starting around a year from now. Nothing to see here.
Given that Draghi has now openly pegged the outlook for monetary policy at least partly to the exchange rate, the prospect of both short-term and long-term investors buying the euro is a worrying obstacle for policy.