July 17, 2024
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Waller - Getting Closer

Governor Christopher J. Waller's speech to the Federal Reserve Bank of Kansas City provided an intricate analysis of the current economic landscape and its implications for future monetary policy. He acknowledged the challenges faced in early 2024 due to an unexpected spike in inflation but noted more recent moderation in both inflation and labor market metrics, indicating a resumed progress toward the FOMC's price-stability goal. Waller expressed cautious optimism about achieving a 'soft landing'—balancing inflation and unemployment without triggering a recession—and suggested that a cut in the policy rate might soon be justified. He emphasized the importance of data dependency and laid out multiple scenarios for future monetary policy adjustments. If favorable inflation data persists, a rate cut could occur sooner rather than later. However, he also highlighted that ongoing communication about potential policy paths remains crucial due to the inherent uncertainties in economic forecasting.

Positivity: 70
Uncertainty: 60

July 17, 2024
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UK Discounts Soften Stronger Services

  • UK inflation was broadly unchanged and close to expectations in June, although resilient services price strength was offset by temporary weakness in goods again.
  • Seasonal goods discounting is unsustainable disinflation. Underlying pressures remain too high, and their persistence keeps raising consensus forecasts.
  • An August BoE rate cut remains most likely, albeit less than before. It can point to the headline rate matching its forecast and lean on its expectation that things will improve.

By Philip Rush

July 16, 2024
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Kugler - The Challenges Facing Economic Measurement and Creative Solutions

Governor Adriana D. Kugler emphasizes the centrality of data in shaping monetary policy decisions, highlighting challenges and innovations in economic measurement. She underscores the importance of high-quality, accurate data from both public and private sources, pointing out issues like declining survey response rates and the lag in traditional economic indicators, which can hinder timely policy decisions. Kugler notes that the Federal Reserve utilizes a broad array of data, including innovative private-sector data, to gain real-time insights into economic conditions. On the monetary policy front, while inflation is trending down, it remains above target. Given current economic conditions with supply and demand rebalancing and moderated wage growth, Kugler suggests that if positive trends continue, easing monetary policy later in the year may be appropriate, although this decision will remain data-dependent.

- Positivity: 75
- Uncertainty: 60

July 16, 2024
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Fixing QT Costs

  • The BoE’s gilt holdings and sales are creating fiscal costs that are unnecessarily large. Restoring the proper separation between the BoE, HMT, and DMO would help.
  • Swapping the BoE’s gilt portfolio for T-Bills with the Debt Management Account would break undesirable linkages and avoid crystalising mark-to-market losses to the deficit.
  • Borrowing would be about £10bn per year less, creating welcome fiscal space and the political victory of clearing up a costly Conservative mess of institutions Labour set up.

By Philip Rush