Archive

Policy Tightness is Gradations of Weak

• The PMIs mostly revealed surprise resilience in April, albeit with the US disappointing. Divergent surprises may reflect excessive spread changes in policy expectations.
• Residual seasonality may exaggerate current strength and unwind in the summer, but stability in unemployment trends still suggests global monetary policy is not that tight.
• Persistent excess demand requires tight conditions to be sustained. The BoE MPC seems desperate to cut, but resilience should delay it, including relative to Fed pricing.

By Philip Rush

BoE Should Move Behind the Fed and ECB

• Hawkish surprises in the UK and US data pushed back rate cut pricing. Dovish comments from Bailey still weigh on BoE rates, inappropriately keeping pricing below the Fed.
• Underlying inflationary pressures are worse in the UK, where wage growth is persistently high and not backed by productivity, causing the UK’s services inflation to be higher.
• Prevailing policy settings don’t seem set to drive down UK inflationary pressures before the US. Unemployment is trending similarly, suggesting similar monetary tightness.

By Philip Rush

ECB Loosely Tied to Cut in June

• The ECB maintained its policy rates and did not pre-commit to a June cut. However, a few members wanted to cut now, and the statement added explicit conditionality.
• Guidance now ties the ECB to a June cut, albeit with ongoing data dependence preserving wriggle room. Sticky services inflation and Fed rates won’t stay its hand.
• Resilient data are rolling back Fed views to our September call, but we now doubt the ECB will want to delay past June. The BoE would probably only then wait until Nov-24.

By Philip Rush

US CPI Inflation 3.48% y-o-y (consensus 3.4%) in Mar-24

- US CPI inflation in March 2024 increased to 3.48% y-o-y, exceeding the consensus forecast again, pointing to a more persistent inflation problem.
- Core CPI inflation also surprised on the upside by remaining at 3.8% y-o-y on a 0.4% m-o-m increase in March 2024.