The Global Markets Weekly – 3/21/14

Posted March 24, 2014 by rvillareal

New Fed Guidance?

The FOMC made clear in its new policy statement that the reframed guidance offered was an “updating” and “does not indicate any change in the Committee’s policy intentions as set forth in recent statements.”  But, there has been significant movement along the policy timeline.[private]

Prominently, the FOMC removed what had become the signpost of the arrival of a policy watershed—6.5% unemployment—essentially by acting as though the watershed had arrived.  In the old text, reaching that level would trigger consideration of “other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.”  In the new text, the list of “information” to be considered—effective now—is exactly the same, but with the unemployment rate just another “measure of labor market conditions.”

The economic assessment motivating the change was almost a declaration of victory.  Most significant was the description of the general tone of activity, last time spoken of as being  “consistent with growing underlying strength in the broader economy,” but now portrayed as involving “sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.”  The economy is in self-perpetuating cumulating growth.

The only genuinely new element in the text was an explicit statement that “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”  Dovish dissenter Kocherlakota saw that as one of the few clear elements in otherwise too-vague guidance,  His hawkish colleagues may be a bit uneasy that lags in the effect of policy—and the potential for an inflation overshoot—are close to being ignored.

• U.S.:Consumer on Track? February personal income and consumption data (Fri) will update the consumer backdrop in Q1, and consumer confidence (Tue) will give a look at March sentiment.
• Eurozone:  There may be even keener interest in the business survey numbers due this week as markets assess whether the Eurozone economy may be developing added momentum. In particular, the March PMI Flashes (Mon) will be examined acutely. Money Numbers (Thu) deserve equal attention
• UK: Perhaps the most incontrovertible BoE assertion recently regards the softer recent inflation environment.  Some additional easing may be on the cards in February CPI numbers (Tue).
• Japan: Friday brings the key indicators of the week, with February results for the CPI, the labor force survey, and retail sales all due.
• Emerging Markets/Regions:  Light data weeks in both China and India, with only the flash March estimate of the HSBC PMI in the former, and the 8-infrastructure industry index (Fri) for the latter.  In Mexico, February trade data arrive, while in Brazil, February current account (Mon) and unemployment (Thu) are key releases.

gmw_0321[/private]