BOE: Breeden: Policy Is Restrictive, Seeking Confidence In Future Disinflation
Sep-30 15:48
In her first substantive commentary on monetary policy since early June, BOE's Breeden sounds supportive of easing policy further albeit without specifying a timeline, writing in a speech Tuesday that "Looking ahead, although the impact of past rises in Bank Rate looks to be around their peak, they will still be weighing on the level of demand and so continue to contribute to the disinflationary process. While the degree of restrictiveness has fallen over the past 18 months as the MPC has reduced Bank Rate, I still judge the current monetary policy stance to be restrictive and so continuing to squeeze persistence from the system." (Speech link here).
- Importantly, "I do not see evidence that the disinflation process is veering off-track. Instead it remains my central case that the “hump” will prove just a bump in the road."
- She says that there are "of course" risks to to her outlook, and that "In such a world it may be tempting to wait to see the “whites of disinflation’s eyes” before looking to reduce the restrictiveness of policy further." But "managing the upside risks to inflation in this way brings risk in the other direction: holding policy too tight for too long comes with costs to output and employment, which could then pull inflation below target...More broadly, there are downside risks to demand which could also pull inflation below target further out. "
- What she's looking for: "With this context, I will be focused on identifying those indicators that give me confidence that the future disinflationary process - in particular the “hand-off” from wages to services price inflation - is remaining on track. Indicators of pricing intentions, from surveys and intelligence from our Agents, will be important here, as will conversations like those I have had in Cardiff today underlining the important part you’re playing in the team trying to understand what’s going on in the economy. Indeed we might think of indicators such as these as signposts that help determine whether we are likely to veer off track. And they will therefore be key in determining when it might be appropriate to remove further restrictiveness."
- While Breeden's support for a cut in November would likely be key to such a decision by the MPC at that meeting, rate pricing through year-end is little changed: now a little closer to 2bp cuts for Nov than 1bp prior to speech release, and 6bp through year-end.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
We've just published our latest US Macro Weekly - Download Full Report Here
- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
