What spooked the Fed?
When a dove such as Fed Governor Lael Brainard suddenly supports rate hikes, purely on stronger survey and soft data, this not a signal she is expecting four rate hikes; it may be more a signal that the Fed has begun to fear they may not be able to manage three. Perhaps the Fed is grabbing an early increase in fear of what might develop later, while equity markets remain at record highs, rather than experience a deterioration in the economy and be kept on hold in the same manner as 2015 and 2016. Macro Thoughts has had sympathy with this school of thought, suggesting after the January FOMC that markets were underestimating a March increase, but that further hikes will be more difficult, especially as Q1 GDP is likely to be considerably weaker than expectations.
Having failed to raise rates last September, it has been a concern that the Fed misses the best opportunities to make their many planned increases; if they had raised rates last September and then again in January, they might be feeling a little more comfortable. If the Fed fails to increase rates in March, Q1 data and European political upheavals could make any subsequent increases more difficult to justify. Consistently, my expectations for US and global growth for the first half of 2017 have been below consensus and, if correct, that may deter Fed members from raising, which would be a policy error, as I believe they will find it harder later in the year.
UK rate rise expectations should increase....My UK forecast for Inflation and growth for 2017 made in August remains unchanged: Inflation is expected to increase between 2.5% and 3% and growth for 2017 and 2018 to be between 1.5% and 2%. The BOE August Inflation Report expected annual import price inflation to reach 6% in 2017 Q1, up from 1.3% in 2016 Q1. Input PPI inflation at the factory gate was 20.5% yoy in January.
Scandal in politics isn’t anything new, but recent events have again thrown up mistrust in policymakers....
Macro Thoughts
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Macro Thoughts is independently researched and draws on extensive macroeconomic and market experience gained in Fixed Income, Futures, Derivatives, Bond, Forex, Commodity and Equity Index markets and from strong Global Macro investment, risk taking and strategy backgrounds. Far-reaching product knowledge across asset classes enables us to consider hedging and investment strategies that reflect our expected market trends. Macro Thoughts is directed by Keith Grindlay, whose experience spans, somewhat uniquely, both the buy and sell side, having managed trading and investment desks at top tier institutions, ensuring all strategies are evaluated for risk/reward and the optimal instrument(s) for best leveraging the strategy suggested are employed.
Globally recognised for strong analytical skills, aligned with a particular aptitude for anticipating global economic events ahead of the majority of commentators, Macro Thoughts’ independent fundamental economic research and analysis and resultant strategies have a track record that assures exceptional results, with a service that surpasses the model of bank-supplied, partisan research and stands out from the general contributions on platforms that your clients and peers already have access to. The support and value offered by Macro Thoughts, delivering written research and analysis, presentations and consulting services, is backed by decades of macroeconomic and market experience and can be tailored to your specific requirements.
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