Monetary policy works. Policy alone is the question mark. The first debate of the campaign saw a debacle for President Biden.
The FED opted for patience, and the May data proved them right.
Argentinian News
The FED He opted for patience, and the May data proved him right. Inflation lies surrendered to its plants. There are no signs of the rebellion of the first trimester. And he ran the fine comb through all her hair. Retail and wholesale prices, import and export prices and, finally, on Friday, the personal consumption expenditure deflator. Where does rebellion nest?
The variation of the deflator was zero. Without a doubt, the fall in the cost of energy lent a hand. However, if you take it aside, core inflation rose just 0.1%. Moderation is the rule. Prices of physical goods fell 0.2%. Food and services (ex housing) rose 0.1%. The exception is the cost of accommodation, which rose 0.4%. He retreats, although he still presents a battle. Inflation, of course, is not the advance of a single line item. However, there was a general level revolt, which broke out with virulence in January and was entrenched until April. That sedition center surrendered in May without conditions.
“Monetary policy is working, inflation is cooling”said Mary Daly, head of the San Francisco Fed. The central bank knew it. The data said the opposite. It accelerated at the beginning of the year at a sustained rate of between 3.5% and 4%. How restrictive was monetary policy then? The FED stopped raising short rates in June. Should I return to the ring? Powell always maintained that it was not. Of course, the projected rate reduction went into the freezer. Should long rates do the dirty work (like in 2023)? Neither. Its increase was hinted at, but when Powell announced a slower pace of shrinking the FED’s balance sheet it was clear that he was not counting on it. And nothing more was needed. The patience, the hands-free strategy, paid off as is now evident.
It is known, a swallow does not cancel winter. The central bank will want to see more information before relaxing. There will be no news at the July meeting. It is too early. New reports that replicate the May signals are necessary. September is the stopover that Chicago futures mark on the calendar. The Fed will have already seen the inflation of June, July and August. “Our plan is not to wait until things break, and then try to fix them,” Powell said at his latest news conference. If inflation does not produce outbursts, the table will be set, long before Christmas. Remember what a hawk, Neel Kashkari, of the Minneapolis FED, stated. “It is reasonable to predict that the FED will not cut its rates until December.” Has he changed his mind? Not so fast.
Monetary policy works. Plain politics is the question. The first debate of the campaign saw a debacle for President Biden. Seven minutes in, when he first lost the thread of his story, the Democratic headquarters’ previous concern turned to panic. “President Biden is my friend. He should withdraw from the race,” wrote columnist Thomas Friedman in the NY Times.
“President Biden: It’s time to quit”headlined Nicholas Kristoff. Now the shrewdness of his people in promoting a first debate so early is understandable. There is still time to maneuver. Governor Newsom of California has taken the lead as a possible replacement in the betting markets. Vice President Kamala Harris follows at a distance. An independent, Robert Kennedy Jr., has offered himself. And Michelle Obama? But Biden is stubborn as a mule. He has no intention of running away. And the next day he confirmed it with a campaign event in North Carolina.
No election is decided four months in advance, but the televised disaster reinforces the star of donald trumpAnd his agenda is a minefield. Applying a 10% tariff on all imports (and 60% on those from China) is not innocuous. Neither are the drastic changes at the FED.
“Powell will be out within 100 days of taking office,” warned his adviser, Peter Navarro. It is an irony: during his administration he did not renew Janet Yellen’s mandate to appoint him. Trump wants lower rates. Always. And no one sensible will be able to satisfy him. Will he remove Powell? Yes. However, without the Senate’s approval he will not define the successor. And he will not be able to appoint just anyone. Finally, Trump aspires to renew the tax cuts that he himself sanctioned and whose expiration is approaching. That is not free either. The fiscal deficit is already immense. “The US will return to the inflation of the 70s,” warns Maurice Obstfeld. It will not be like that, even if Trump insists on his plans. The FED – with and without Powell – will be able to keep prices under control. Of course, it will have to raise interest rates. And the cost in the end could well be recession and a hard landing (if Trump does not give in in time).
The FED could lower rates in September, yes. But Kashkari’s recommendation, waiting until December, is an elegant way of waiting for the outcome of the election to know what to expect. It would be see and wait. No longer just to carry out the lower rates promised on the points map. Also to evaluate if the roadmap needs to be changed and a raise prepared.
Source: Ambito
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