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Commentary

Tue 11 Jun 2019 / North America

Powell revives talk of 'Fed put'

The Federal Reserve's two-day Chicago conference at the start of June was supposed to be a quiet, semi-academic review of monetary policy strategy, without generating any market-moving news. But monetary policy-makers don't always get to pick their moments, and Fed Chair Jerome Powell moved markets with just a few words when he spoke at their early June gathering. His concession in Chicago revived talk of a 'Fed put' – that the Fed would cut rates to prevent any substantial decline in the stock market.

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Thu 9 May 2019 / North America

Powell parries inflation questions

At the press conference that capped the most recent two-day meeting of the Federal Open Market Committee, journalists tried and tried again to get Fed Chair Jay Powell to budge from his stubborn point of view that 'inflation will return to 2% over time and then be roughly symmetric around our longer-term objective'. The new dip in inflation, Powell said, was due to 'transitory factors'. He was at pains to dispel the notion gaining ground in markets that the Fed was contemplating a cut in rates.

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Tue 7 May 2019 / North America

Fed should focus on winning over public

The Federal Reserve's review of its 'monetary policy strategy, tools and communication practices' – especially during the forthcoming June conference – offers an opportunity to examine the questions surrounding Fed 'independence'. One of its goals should be to win over the public, rather than fascinate markets and high priests of monetary policy. The Fed should dispel public perceptions that it alone can deliver all desired economic outcomes, let alone determine stock market prices.

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Thu 25 Apr 2019 / North America

Fed on rough road to normalisation

The Federal Reserve, presiding over a shrunken output gap and perkier wage growth, remains the test case for whether any central bank can 'normalise' interest rates. The likelihood is that US rates are already at or close to their summit. Even if the Fed surprises markets by raising rates again, this would still leave its official policy rate barely positive in real terms. While the road to 'normal' looks closed off in interest-rate terms, overall policy neutrality could, in principle, be achieved through other means. In practice, however, it won't.

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Wed 24 Apr 2019 / Europe

Franco-German questions on Europe

The longest-running conundrum in the European Union is: 'Who runs Europe – France or Germany?' With Britain on its way to leaving the EU, France and Germany are preparing in different fashions and with different expectations for a new European chapter in which the continent's two leading economies must come to terms with each other without the moderation of a third major economic and strategic player. If the challenges intensify, Angela Merkel in her twilight phase as chancellor will find President Emmanuel Macron a steely adversary.

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Thu 18 Apr 2019 / North America

Fed running out of monetary ammunition

It is clear that President Donald Trump's administration is not concerned with whether the US will have enough resources left to fight the next downturn. The president's quest for an ultra-easy monetary policy at this late stage in the economic cycle might cause the US economy to overheat and thereby rekindle inflation. Moreover, it would leave the Federal Reserve with scant ammunition to fight the next recession. With the Fed funds rate already as low as 2.25%-2.5%, further cuts would leave the central bank with limited room to slash rates.

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Tue 9 Apr 2019 / Asia Pacific,Global

Beijing ready to 'China-ise' the West

The West is slowly getting over the idea that China will 'westernise'. The illusion that it is only a matter of time before the population's rising wealth will deprive the Chinese Communist Party of the power it wields is dissipating. China is enjoying growing wealth because the authorities have set loose beneficial market forces. Many western firms have profited from this, and many more crave China's custom. This means Beijing can now take the route of 'China-ising' the West, including by promoting wider use of the renminbi.

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Thu 21 Mar 2019 / Global

Next financial crisis may eclipse 2008

It is difficult to forecast when the next global economic recession will happen. It is much easier to predict its severity. Among the more disturbing vulnerabilities of the global economy is the large amount of debt spawned by the years of ultra-unorthodox monetary policy conducted by major central banks in advanced economies. According to the IMF, the global debt to GDP level is 250% – around 30 percentage points higher than it was on the eve of the 2008 financial crisis, and the mispricing of global debt has become much more pervasive.

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Wed 13 Feb 2019 / North America

Questions over Fed dovishness

The Federal Open Market Committee's decision at the end of January to pause rate increases was long telegraphed and widely expected. But the highly dovish messaging in the Federal Reserve statement and press conference by Chair Jerome Powell surprised markets. The reasoning for the sharp shift in Fed rhetoric between December and January remains elusive. To reconcile an unchanged baseline economic outlook with its dovish messages, the Fed pointed to increased external downside risks.

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Tue 5 Feb 2019 / Asia Pacific

Election muddies India's outlook

Conditions are becoming murky in the lead up to India's general election in May. Prime Minister Narendra Modi's popularity is falling, and the losses of his Bharatiya Janata Party in state assembly and other by-elections dim his prospects for a clear win. The government's drive to boost growth has shifted economic policies into an expansionary mode. Last October the RBI moved its policy stance to 'calibrated tightening', citing sustained inflation risks. The events since, especially after the resignation of Governor Urjit Patel, shift the bias towards easing.

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