Fed Hike

Generali

For those interested, the CPI for the year to January 2016 was released yesterday and was +0.3%.

However, the very low level of inflation is driven solely by negative inflation in goods markets. Inflation in services, much less impacted by the falling oil price, now sits at 2.1%.

IMHO the falling oil price will take the rest of the year to fall out of the CPI figures due to most companies that are large buyers of oil using hedges and so effectively having locked in the higher price for now. As a result, if you want to see the numbers that will impact on MPC decision making you need to follow the services part of the CPI. That is shown in row 34 of worksheet 29 of the CPI Detailed Reference Tables. It is series L52G.

The other thing to look at is wages and unemployment. I don't see how the BoE can fail to raise rates if unemployment goes below 5% or wage increases continue to accelerate (nominal wages in the private sector are up 2.2% in the year to November 2015 and I expect the figure to be the same or higher in the year to December which are due for release at 9:30am).

michaels

I admit I was surprised the headline rate wasn't lower, there seem to be less 'second order' impacts of the lower oil prices than I expected in the obvious sectors like travel and distribution costs. Perhaps this reflects that we are more and more a post industrial society so the energy (and commodity) input per unit of output is lower?

However I thought the stats showed that nominal wages increases continued to slow from about 3% a year ago to 2% now. However I guess the minimum wage increase plus 'differentials' might see this turn around too.

worldtraveller

The Federal Reserve held interest rates steady on Wednesday and indicated that moderate U.S. economic growth and "strong job gains" would allow it to tighten policy this year with fresh projections showing policymakers expected two quarter-point hikes by the year's end, half the number seen in December.

The U.S. central bank, however, noted that the United States continues to face risks from an uncertain global economy.

Reuters

IMHO, I just don't see it happening!

Thrugelmir

worldtraveller wrote: »

IMHO, I just don't see it happening!

The US is insular. They set the agenda for everyone else.

michaels

Thrugelmir wrote: »

The US is insular. They set the agenda for everyone else.

Agree they are 'insular' in that trade is only about 10% of GDP.

Disagree that the rest of the world has to tighten just because they do (although perhaps with dollar borrowing the rest of the world tightens by default?)

Thrugelmir

michaels wrote: »

Disagree that the rest of the world has to tighten just because they do (although perhaps with dollar borrowing the rest of the world tightens by default?)

Economies that are pegged to the US dollar include Hong Kong, Qatar, Saudi Arabia, Jordan, Venezula, Bahrain, UAE, Singapore.....

Then loosely there's China. Who maintain a competitive stance.

DiggerUK

https://www.federalreserve.gov/newsevents/speech/yellen20160329a.htm#f5

Not news of a change in rates. But my reading is that lower, or negative rates, are off the agenda, and that more QE is the only 'bazooka' they have..._

"A key factor underlying such modest revisions is a judgment that monetary policy remains accommodative and will be adjusted at an appropriately gradual pace".....

".....if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero."

worldtraveller

A U.S. Federal Reserve policymaker said on Tuesday that he will push for an interest rate hike in June or July and two others still see up to three rate increases this year, leaving the door open to a change in monetary policy relatively soon.

The U.S. central bank has held rates steady at a target range of 0.25 to 0.50 percent since moving from near zero in December. In its April policy statement it indicated it wants to have more confidence in the economy's overall health before raising rates again.

Data on consumer prices, housing starts and industrial production released earlier on Tuesday showed the U.S. economy re-accelerating into the second quarter.

Reuters

Generali

More noises coming from the Fed that they'll raise rates again in June, e.g.:

http://www.cnbc.com/2016/05/22/financial-times-us-close-to-passing-test-for-june-rate-rise-fed-official-says.html

My guess is that if the UK votes to Remain then the BoE will follow suit shortly afterwards.

michaels

UK q2 geowth looks to be about 0.1%. Does that really justify a rise?