Archive

Credit For Inflation

• Credit and monetary holdings are booming in the UK, enabling consumers to spend their devalued pounds, supporting CPI inflation beyond the target.
• Falling rates have neutered the refinancing shock, facilitating the affordability of loan demand. Rapid ongoing wage growth further reduces the debt burden.
• The ECB also sees bullish monetary trends, but they only took it to a good place. The BoE is not in a good place, with policy accommodating above-target inflation pressures.

By Philip Rush

BoC Cuts to 2.25%: End or Pause?

• The Bank of Canada cut its policy rate by 25bp to 2.25%, matching the consensus, and signals the current rate is about right to sustain 2% inflation.
• Structural damage from tariffs limits further monetary easing. Fiscal policy is expected to carry the economic support burden ahead.
• Economists are divided: some see the cycle complete at 2.25%, others forecast further cuts to 1.75-2.0% if growth disappoints materially.

Fed Cuts Amid “Data Fog”; Path Ahead Uncertain

• The Fed’s 25bp rate cut to 3.75–4.00% was anticipated, with the decision reflecting rising labour market risks amid the data fog.
• Policy outlook hinges on future data. Inflation remains sticky, but the labour market weakening drove today’s pre-emptive move.
• A pause in QT’s asset runoff demonstrates heightened caution. December’s decision is “not on a preset course”.

China/US: Sauce For The Goose…

• Donald Trump and Xi Jinping’s 30 October summit will likely stave off, for now, any further escalation of trade tensions between China and the US.
• However, thanks to its monopoly on strategic minerals and Xi Jinping’s willingness to play a long game — even beyond ‘mere’ trade — China holds the stronger hand.
• Irrespective of whatever Mr Trump concedes this week to secure a ‘headline grabber’, Xi Jinping will therefore come back for more, not least on Taiwan.

By Alastair Newton