Recap 2014-11-19




  • Fed Minutes
  1. a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly…However, many participants saw the effects of recent developments on the domestic economy as likely to be quite limited.
  2. Survey-based measures of inflation expectations remained well anchored, but market-based measures of inflation compensation over the next five years as well as over the five-year period beginning five years ahead had declined over the intermeeting period…. many participants observed that the Committee should remain attentive to evidence of a possible downward shift in longer-term inflation expectations; some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered.
  3. Most participants judged that it would be helpful to include new language in the Committee’s forward guidance to clarify how the Committee’s decision about when to begin the policy normalization process will depend on incoming information about the economy. Some participants preferred to eliminate language in the statement indicating that the current target range for the federal funds rate would likely be maintained for a "considerable time" after the end of the asset purchase program… However, other participants thought that the "considerable time" phrase was useful in communicating the Committee’s policy intentions or that additional wording could be used to emphasize the data-dependence of the Committee’s decision process.
  4. With regard to the pace of interest rate increases after the start of policy normalization, a number of participants thought that it could soon be helpful to clarify the Committee’s likely approach… Most participants supported retaining the language in the statement indicating that the Committee anticipates that economic conditions may warrant keeping the target range for the federal funds rate below longer-run normal levels even after employment and inflation are near mandate-consistent levels.

US Housing Starts declined 2.8% MoM vs +0.8% exp

BoE Minutes:

  1. Below-target inflation was judged to be partly the consequence of a margin of spare capacity bearing down on domestic costs and prices: in the year to 2014 Q2 underlying unit labour costs had been broadly flat.
  2. Although there was little evidence that it had yet occurred, and perhaps only a rather small likelihood that it would, a prolonged period in which inflation was below the target created at least the possibility that medium-term expectations of inflation would begin to drift downwards. This had the potential to lengthen the period for which inflation itself would remain below 2%.

BoJ left policy unchanged as exp. Worth noting is that that three out of four board members who objected to the additional easing (QQE-2) on October 31 turned to favor today’s decision as they think, according to governor Kuroda, that the committee decision should not be changed in the short term as it would lose the credibility of the BoJ. (Kiuchi voted against) In the press conference, Kuroda said that ““It’s the responsibility of parliament and the government, not an issue for the central bank to be held responsible for,” He emphasized the importance of the fiscal discipline and repeated to say that the BoJ is expecting the government to establish the sustainable fiscal structure, but the 18 month delay of the tax hike, especially with strong remarks of Abe to maintain the FY2020 fiscal targets to turn the primary balance of central and local government to surplus, was not regarded as the loss of discipline.

Abe gives an interview to the Nikkei and in it he talks about how upcoming corporate tax cuts (to be enacted next fiscal year) will help drive wages higher. Starting in F15 Japan will begin lowering its corporate rate to the 20% range. Nikkei “There is no backing away from our commitment to fiscal consolidation,” Abe said. “We will keep our fiscal 2020 goal to achieve fiscal health. I am convinced that through that, there will be no loss of international trust.” “There will be yellow lights flashing on whether we can achieve our fiscal target next year” considering the need to compile an economic stimulus package, Economy Minister Akira Amari told reporters after Abe’s comments. “All I can say now is we will make our utmost efforts.”


  • Wed: Japan Trade Balance, PMI, China HSBC PMI
  • Thu: EU PMI, US CPI, Jobless Claims, Markit PMI, Philly Fed, Existing Home Sales, EU Consumer Confidence
  • Fri: Canada CPI
  • Mon: German IFO, US Markit Services PMI, BoJ Minutes, BoJ Deputy Governor Nakaso speaks
  • Tue: Canada Retail Sales, US House Prices, Consumer Confidence