Economic Update – UK Inflation Spikes, Weidmann Hawkish on ECB Policy, Fed Chairmen Interest Rate Comments…

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Bloomberg: U.K. Inflation Gains More Than Forecast, Breaching BOE Goal

  • U.K. inflation accelerated more than economists forecast in February, breaking through the Bank of England’s target for the first time in more than three years.
  • The 2.3 percent increase in the consumer prices index was the fastest since September 2013 and above the median prediction for 2.1 percent. The rate is up from just 0.3 percent a year ago, reflecting sterling’s 17 percent drop since the Brexit vote in June, as well as an increase in oil prices.
  • Core inflation rose to 2 percent, the fastest since mid-2014, the Office for National Statistics said on Tuesday.

Market Watch: BOE rate hike in May? Soaring U.K. inflation will bring out the hawks, analysts say

  • It has happened — for the first time in more than three years, U.K. inflation has broken above the Bank of England’s 2% target, adding pressure on the central bank to raise interest rates to curb the rapid jump in consumer prices.
  • The Bank of England has said it will allow for an inflation overshoot for some time to help the U.K. economy through a potentially turbulent divorce with the European Union. However, BOE Gov. Mark Carney has noted there’s a limit to that and the first hawkish noises have started to emerge from Threadneedle Street. At a policy-setting meeting last week, BOE official Kristin Forbes broke ranks and voted for a rate hike, in a surprise move that helped send the pound higher.
  • After Tuesday’s inflation data, analysts now expect the hawkish cries to intensify.

Market Watch: German central bank chief questions ECB easing

  • German central bank President Jens Weidmann suggested on Monday that the European Central Bank should slowly start to retreat from its easy-money policies, amid a surge of criticism of the ECB’s policy stance in Germany.
  • “One can absolutely ask the question of whether the ECB governing council shouldn’t slowly consider an exit from very loose monetary policy,” Mr. Weidmann said in a speech in the southern German town of Loerrach.
  • Mr. Weidmann suggested that the ECB should alter its guidance to financial markets, by removing a pledge to boost its stimulus again if the economic outlook darkens. He argued that the recent increase in inflation — to 2% last month, slightly above the ECB’s target — helps push down inflation-adjusted interest rates, so that monetary policy has grown even looser.

CNBC: Business confidence in Trump has not translated into much action, Fed’s Harker argues

  • Philadelphia Federal Reserve President Patrick Harker told CNBC on Monday that he won’t be able to judge the economic impact of President Donald Trump’s fiscal agenda until it’s fleshed out.
  • “I don’t know what exactly those policies are yet,” Harker said on “Squawk on the Street,” referring to promises of broad tax cuts and $1 trillion in infrastructure spending. “Once we see something that looks likely … then I can factor that in,” he said.
  • Harker said the Fed’s 2 percent target is measured against headline inflation, which includes food and energy. “I think we’re there and moving in the right direction. There will be a little bit of an overshoot and that’s OK,” the Philadelphia Fed president argued.

Reuters: Fed on track to raise U.S. rates twice more this year: Evans

  • The Federal Reserve is on track to raise interest rates twice more this year after a policy tightening last week, and it could be more or less aggressive depending on inflation and fiscal policies from the Trump administration, a Fed rate-setter said on Monday.
  • “Three is entirely possible,” Evans, speaking on Fox Business Network TV, said of hikes in 2017. “As I gain more confidence in the outlook I could support three total this year. If inflation began to pick up, that would certainly solidify (that expectation). It could be three, it could be two, it could be four if things really pick up.”
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