Fiscal Gridlock: Light at the End of the Tunnel? The House of Representatives has just passed a budget deal that will, in principle, avert another showdown on fiscal policy for at least two years. The new deal will increase permitted discretionary spending by $48bn over the next two years. This will replace the cuts that […]
Rising Velocity of Circulation of Money: A Risk for US Financial Markets
US Monetary Policy Transmission Mechanism: Set to Change in 2014? One of the salient features of the financial environment since the collapse of Lehman Brothers in 2008 has been the ability of the Fed to boost the money supply (M2) without generating inflation. In fact, the opposite appears to have happened: deflation is a still […]
US Monetary Policy: Fed Shifting Focus to Federal Funds Target
US Monetary Policy Communication: Entering a Crucial Period Historically, the credibility of the Fed ultimately hinged upon the implementation of policy measures aimed at achieving its dual mandate. The twin policy goals were bestowed on the Fed in 1978 when unanticipated inflation was wreaking havoc in financial markets and the real economy. Not surprisingly, in […]
The New Fed Policy Thresholds: Nothing Sinister, But Hostage to Politics
The Fed Gets Even More Transparent The decision by the Federal Open Market Committee (FOMC) to embrace policy target thresholds has taken monetary policy transparency to a new level. I recently alluded that the FOMC could embrace such a tactic in early-2013. The FOMC also decided to raise the ante on its asset purchase programme […]
Political Revenge on the Bank of Japan?
Politics Hijacks Monetary Policy in Japan Financial markets have always been wary of political interference in the running of central banks. Profligate politicians cannot be trusted to ensure price stability. Independent central banks have tended to preside over stronger exchange rates and lower inflation than those subject to political pressure. While central banks wish to […]
US Financial Asset Returns Under Fiscal Policy Tightening
Avoiding the Fiscal Cliff and Pleasing Financial Markets We are now firmly in the lame duck session of Congress and financial markets will continue to be wary about lack of progress in postponing the fiscal cliff. Some fiscal policy tightening will happen in 2013. At the moment, markets seem to be discounting tightening of 1% […]
Into the Unknown: US Monetary Policy under the Fiscal Cliff Scenario
Will the Fiscal Cliff Force Further Quantitative Easing? Now that the US Presidential election is over, financial markets are focussing on the prospect of a full-blown fiscal cliff scenario engulfing the economy. Observers agree that such an outcome would be disastrous: the economy would fall into recession, producing a renewed rise in unemployment. It would […]
The Economic and Financial Implications of the 2012 US Presidential Election
Perceptions Die Hard The uncertain outcome to the US Presidential election was cited by many commentators as to why corporate risk-taking has remained subdued in 2012. The political landscape is essentially the same as to what prevailed prior to the election. There was a widely-held presumption that a Romney victory would be bullish for equities, […]
Weaker US Potential GDP Growth and Deleveraging: Formidable Challenges Whoever Wins
Is the US Economy Stuck in a 2% Growth Path? The most imposing economic challenge facing the winner of the Presidential election is getting the US economy back on a faster growth path. The economy has been seemingly stuck in second gear since the end of the Great Recession: the average annualised growth rate of […]
US Corporate Profits: Under Greater Scrutiny
US Corporate Profits: Continued Weak Top-line Performance in Q3 We have just completed an important week for corporate profit results for S&P500 companies. The percentage of reporting companies beating EPS estimates remains high (71%), but the percentage of companies beating top-line estimates remains disappointingly low at 36%. The weakness in top-line performance is a continuation […]
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