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30 Jun 2016
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17 Jun 2016
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08 Jun 2016
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08 Jun 2016
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07 Jun 2016
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06 Jun 2016
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06 Jun 2016
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03 Jun 2016
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03 Jun 2016
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There’s no doubt that Thursday’s UK referendum vote on EU membership is pivotal. Whatever the result come Friday things will be different and we will adjust accordingly. The political landscape will shift – possibly quite dramatically and markets will reset to the fresh reality. This could happen quickly if the vote is a clear win for “Remain” or longer for “Leave” as the various options are discussed and negotiations take place. But unless there’s a dead-heat at least we’ll be able to refocus on the global economic situation with the uncertainty of the referendum outcome behind us.
  
With that in mind we have to consider the upcoming testimony of US Federal Reserve Chairman Janet Yellen on Tuesday and Wednesday. Tomorrow Dr Yellen will testify on the semi-annual Monetary Policy Report before the Senate Banking Committee. On Wednesday she testifies before the House Financial Services Committee. These are important events as Dr Yellen will face questions from both sets of committee members which may cover areas of monetary policy that she’d rather not answer. The Fed Chair came in for a load of criticism recently when she gave a garbled response when asked about the Fed’s credibility. She may get picked up on this over the next couple of days. 
  
Last week saw the central bank keep monetary policy unchanged while lowering its economic growth forecasts for 2016 and 2017. In the subsequent press conference Dr Yellen cited weaker employment data together with concerns over the possibility of a Brexit as reasons for keeping rates unchanged. Fortunately, the Fed Chair will still be able to use the UK referendum as cover for the central bank’s unwillingness to hike rates. However, there may be some issues which she will find more difficult to duck. High amongst these may be the constant flip-flopping on rate expectations from members of the Federal Reserve. In years gone by it was the job of central bankers to gently guide users of the financial system and help provide stability and a degree of certainty over the outlook for monetary policy. Now we go from one meeting to another parsing statements and minutes - delving for evidence of hawkishness or dovishness. The question has to be, is this intentional (which would be bad enough) or is the Fed genuinely clueless about what to do next (which would be worse)? 
  
I doubt that Dr Yellen’s inquisitors will be openly hostile. I also doubt that she will be accused of behaving like an inconsistent girlfriend like BOE Governor Mark Carney was once called an “unreliable boyfriend” as he gave out contradictory signals on monetary policy. However, it will be interesting how she squares an upbeat view of the US economy with reluctance to tighten monetary policy.    
David: Now we go from one meeting to another parsing statements and minutes - delving for evidence of hawkishness or dovishness.
  
Disclaimer:
  
Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Category: PM Bulletin


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