First published: Financial Times, 16/02/2017
Central bank may have to drop data dependency and take a more strategic approach
Painting a relatively optimistic economic picture during Congressional testimony this week, Janet Yellen confirmed the Federal Reserve would raise interest rates gradually. It was clear in the sessions, though, that other factors would soon weigh on interest rates and markets. Fiscal policy could make the Fed more hawkish. Yet the political agenda of financial deregulation, coupled with President Donald Trump’s choices for several vacancies on the Fed’s board of governors could tilt it the other way. The economic background for monetary policy is, if anything, a little firmer than it was at the last Federal Open Market Committee meeting at the end of January. The most recent employment data, especially for manufacturing, support the idea that the lengthy inventory correction that had depressed economic growth for several quarters is over. The new year purchasing manager surveys, order flow and temporary employment numbers have been positive. The Fed’s preferred inflation measure, the personal consumption deflator, has continued to edge up towards the Fed’s 2 per cent target….Read more:
First published: Prospectmagazine.co.uk, 10/02/2017
The US underpinned the liberal economic order. So what now in a world of America First?
Often accused of being rambling or incoherent, in his inaugural address President Donald Trump did—for better or worse—have something substantial to say. He summed it up in the two-word slogan, “America First.” To the uninitiated, this might have sounded like typical new-president waffle that might be forgotten as quickly as the “thousand points of light” of George HW Bush’s 1989 inaugural. Those who know their American history, however, were not so easily soothed. For “America First” was also the slogan of the isolationists during the 1930s, the last time the world descended into a serious trade war. The question that can no longer be ducked is whether it could happen again.
On their path to the top, many presidential candidates—Barack Obama and Bill Clinton included—have aired anxieties about trade, but they have tended to cool their rhetoric pretty quickly on assuming office. They were bound to do so if the United States were to maintain the role it has had for the last 70 years, as the linchpin of the liberal trading order. No winning candidate, however, has adopted anything like the language of Trump, who has talked of the “rape” of America’s jobs….Read more:
First published: Bloomberg Prophets, 9/02/2017
Donald Trump is off to a controversial start as U.S. president, but for the most part financial markets have been fairly relaxed about American and global economic prospects despite the lack of any precise contours for the new administration’s fiscal strategy.
In fact, the markets have barely discounted the risks of trade and currency conflicts. What they should prepare for is a significantly stronger U.S. dollar, and greater weakness in U.S. bonds, commodities and emerging markets. The implications for equities are more nuanced.
The president and several key nominees haven’t sought to obfuscate how they think about trade. For them, it’s a zero-sum game in which there can only be one winner, and in which the interests of U.S. suppliers of exports and labor take precedence over those of Americans as consumers of imports. Regional trade agreements such as the Trans-Pacific Partnership that are built around the establishment of rules and the economics of supply chains are out, while bilateral arrangements in which the U.S. can bring to bear its economic heft and leverage are in…..Read more: