I will not speak directly of the current economic outlook. It will come with my conclusion.
I will speak of two books that have had a real success recently. They are different but both of them are based on a sophisticated and robust empirical analysis. And this analysis is a support for their conclusions. I will jump on these conclusions because that’s what is interesting. Continue reading →
Janet Yellen said nothing unexpected at the press conference following the meeting of the Monetary Policy Committee of the Fed. Forecasts for growth and inflation were adjusted and the amount of assets to be purchased was reduced by USD 10bn to USD 35bn from July. In her introductory remarks the president of the Fed said it would happen a considerable time between the end of the asset purchase program (next fall) and the rise in interest rates. In March to a reporter’s question about what she had in mind about the considerable time she said 6 months. This had put everyone in an uproar. A reporter asked him the question again. Her answer is simple: it depends. It depends on the macroeconomic, political, geopolitical ……. In other words, the Fed indicated that interest rates will rise but do not want to tie its hands to specific commitments in time or excessively detailed monitoring of macroeconomic indicators. The Fed confirms it is in the “let us do what is needed”. Not sure whether the most reassuring scenario.
If you are curious then spend 5 minutes to read this discussion between Robert Gordon (see here) and Joel Mokyr (see here).
The first considers that everything that is essential has been created and that innovation is now associated with the past. Joel Mokyr is more optimistic and considers that a lot is still to be done.
Both are professors at the University of Northwestern
The discussion is here http://bit.ly/Gordon-Mokyr
During the first quarter, the Fed’s balance sheet became larger than that of the ECB. Each balance sheet is now close to 23% of its respective nominal GDP.
The chart shows differences in monetary strategies. The ECB line is characterized by its temporary increase from the end of 2011 with the two LTRO. We notice that the Fed has had almost no reversal in its strategy. Measures were not temporary. That’s a real difference and the current perception is that the monetary policy has been more accommodative in the US than in the Euro Area.
We cannot imagine spontaneously a weaker euro is this situation. The amount of euro offered by the ECB is on a weaker momentum than the amount of dollar offered by the Fed. This can be related to a strong euro.
But what would be the impact of the TLTRO? Continue reading →
The first chart compares industrial production’s profiles in Europe. It shows the main Euro Area countries plus the United Kingdom. With the exception of Italy for which economic outlook is still problematic, we see a real recovery in Germany, in the United Kingdom and in Spain even if for this latter the level of activity is still very low. The French index is lagging and doesn’t seem to participate to the same momentum.
The 0.3% seen in April for the industrial and the manufacturing indices doesn’t change the picture. The puzzling issue is that in June 2013, the UK and French levels were the same. Now, in April, the gap is more than 3%. Continue reading →
Usually the low inflation rate in the Euro Area is explained by low and downward trending commodity prices. It’s easy to think that the risk of deflation comes from outside.
This is no longer the case. In May commodity prices’ contribution to the inflation rate was null.
We can go further and notice that the situation is worse now than two months ago.At the end of the first quarter, the core inflation rate (March compared to December) was at the same level in 2011, 2012, 2013 and 2014. At the same time, the headline inflation rate was decreasing from 2011 to 2014.
As the chart below shows, Continue reading →