G3 Recap 2-23-11

Main Items:

  • MPC voted 3-5-1 to keep policy unchanged. Dale joined Sentence and Weale in voting for a hike, but Sentence is now calling for a 50bp hike. Dale is the BoE chief Economist and a career BoE employee, so his shift suggests that rate hikes are imminent.
  • Fidelity says average 401K balances hit a 10yr high at the end of last week. The average account balance rose to $71,500 in 2010, up about 11 percent from the end of 2009 – Bloomberg

Overseas Data:

  • Australian Wage Cost Index rose 3.9% YoY in 4Q vs 3.8% expected and 3.5% previously.

Commentary:

  • Nada
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2 thoughts on “G3 Recap 2-23-11

  1. strange that not a peep mentioned about unwinding the BOE balance sheet prior to proceeding with a rate hike; indeed BOE hawkish front may be more about perception of managing inflation expectations than producing any real significant tightening path.

    also, perhaps enough headline pipeline inflation being generated for the FEDs comfort level which combined with better data of late may bring out more hawkish spin. any thoughts about probability of QE2 being cut short? Ben et all must be getting some pretty loud phone calls from folks not too happy with current global de-stabilizing policy and oil prices getting to sphincter tightening levels.

    1. Good point Bert about the BoE balance sheet. Maybe they decide to sell before hiking to buy some more time. Seems like a better idea to me anyway.

      I think that it’s even more unlikely now that QE2 gets cut short. You’re right, other (mostly foreign) people aren’t happy, but the Fed has never paid them that much attention unless it impacts the US. This jump in oil prices is negative for growth when Bernanke said just a few weeks ago that if rates weren’t at 0, the Fed would be cutting. The balance of risks is tilting away from an early end to QE2 (not that it was ever very high, IMO) and toward QE3, which I think the market is reflecting.

      Inflation is definitely a problem globally, but given the Fed’s 2 mandates, growth concerns trump inflation concerns by a very large margin, IMO. As you’ve noted, the game plan is to inflate away the debt…

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