March 18, 2017

A game of chicken: The Fed lost

Week ending Friday 17th March 2017 Last week we called it a “A Game of Chicken”. We wondered who would blink first. Well, we know now. The Fed blinked. Having cranked up expectations for tightening two weeks previously they did the bare minimum. Just 25bps rate rise, but no change to projections, disposal of Fed assets or anything else. The markets heaved a huge sigh of relief and effectively said it was relative monetary easing. “Relative” because money remains tight, just a bit less tight than it was. The Fed wants it to rain but no one to get wet… Read More


Can A Developed Economy Permanently Atrophy?

It is not an encouraging pair of charts: U.S. manufacturing output never returned to 2008 levels, and housing production is off by 45% from pre-2008 Great Recession levels. Yet some macroeconomists, and evidently the U.S. Federal Reserve, see enough signs of labor-market tightening and price action that they say higher interest rates are warranted. A string of hikes through 2017, no less. Even some Market Monetarists recite anecdotes of “labor shortages” in manufacturing and construction in endorsing the Fed tightening. Is the U.S. entering an age of permanent economic atrophy? The U.S. cannot produce as much housing as it did… Read More