Low inflation not a barrier for Fed – ANZ

By FXStreet Analysts at ANZ explained that the central banks know something the rest of us don’t and a nasty turn of events is on its way, or improving market sentiment could cause a reassessment of central bank views as they realise the outlook is not as grim as feared.

Key Quotes:

“We too are cautious about the impact of previous market volatility and the global scene, but note that a pronounced global downturn is not a fait accompli given the amount of policy stimulus in the system together with low commodity prices. A still reasonable data pulse also suggests the global economy remains in expansion mode despite pronounced market volatility at the start of the year.

Commodity prices have also drifted up of late, although we acknowledge this is partly due to the lower USD. To be fair, a circa USD40/bbl oil price suggests inflation is unlikely to race away, although comments by the Fed’s Lacker, Lockhart, and Williams overnight suggest low inflation will not be a barrier to US rates moving up.

For now, markets seem happy to lap up easy policy, with 10-year Treasury yields still sub 2% despite lifting core inflation and a limited margin of spare capacity. The future …read more

Source:: FX Street