In reaction to the US Federal Reserve meeting today, Lee Ferridge, head of multi-asset strategy for North America at State Street Global Markets and Antoine Lesné, EMEA head of ETF strategy at SPDR ETFs, part of State Street Global Advisors, offer their views.
Today, the September US CPI Urban Consumers is expected to print higher at 0.3% m/m versus 0.2% m/m a month previous The annualised data is expected to surge to 1.5% y/y. It has been a year since the core inflation has reached the Fed’s target of 2% and we now believe that Urban Consumer inflation is on its way higher. Janet Yellen also declared last Friday that it would be wise to consider the benefits of a “high-pressure economy”.
And this is exactly what the Fed needs. From our vantage point, it is clear that the Fed’s target of 2% is actually too low. The Fed needs much higher inflation in order to kill the US government’s massive debt and we believe that this inflation is now coming. This also explains why the Fed had been so reluctant to raise rates over these past few years.
This statement from Janet Yellen was not the only one. The BoE also, according to Governor Mark Carney, is prepared to let inflation go higher to support economic growth. The reality here is that central banks needs a strong differential between nominal rates and real rates to kill countries’ massive debts.
Today we will closely monitor any inflation development and we feel that this uptrend is only the beginning.
Yann Quelenn & Peter Rosenstreich - Swissquote
We are in a summer lull and the Draghi fireworks will have to wait until autumn. By signalling their intention for rates to remain lower for longer as well as willingness to act when necessary, the ECB has bought some time to observe more data points and changes in economic conditions from the recent geopolitical developments and the efficacy of their outstanding policy actions and purchase programs.