|
 If the Fed sticks to mid-year for its first interest rate rise in a
decade, it will be perceived as a reflection of the world economy's
growing resilience.
U.S. core CPI inflation data due next week will also give some idea
of just how much the collapse in oil prices which has tamped down
inflation globally will work as a counterweight to the Fed's
apparent comfort so far with higher rates in June.
But the fretting over Greece -- which makes up less than half of one
percent of world GDP -- has underscored the impression that for all
of the piles of monetary stimulus over the past few years, many of
the troubles remain the same.
The Athens government was scrambling on Monday to present reform
measures to secure a financial lifeline from the euro zone.
While purchasing managers' data for the euro zone in February are
pointing in the right direction, Europe is still struggling to
create meaningful growth that would generate the kind of strong
hiring that might in turn push up wage inflation.
China is grappling with a property market and debt overhang as it
tries to rebalance its slowing economy and a purchasing managers'
index due on Wednesday is expected to show persistent stagnation in
its once-booming manufacturing industry.
Much of Latin America, particularly Brazil, has slipped back even
further from a past position of strength and has very little to
offer a world economy that the World Bank warns is now running on
one engine, made in America.
Minutes to the Fed's latest policy-setting meeting suggested to some
analysts that policymakers might be backing off a June rate rise.
But the strongest set of jobs data in many years were published
after that late January Fed meeting took place.
"If unemployment keeps falling, the laws of supply and demand have
not been repealed, we will get inflation out of this," said Jim
O'Sullivan, chief U.S. economist at High Frequency Economics in
Valhalla, New York.
"In terms of going to the next step, does that mean they're
tightening in June? Not necessarily," he said.
O'Sullivan expects Yellen to sound optimistic on the full employment
part of the Fed's dual mandate when she delivers her twice-annual
testimony to Congress on monetary policy, starting with the Senate
Banking Committee on Tuesday.
The majority of forecasters still expect June for lift-off on U.S.
rates, and the latest Reuters poll suggested that about two-thirds
of them had held to the same conviction over the timing over the
course of the past month.
What hasn't been working in the Fed's favor is evidence that
inflation is picking up. Core inflation, which strips out food and
energy prices, is expected to hold steady at 1.6 percent when data
are due Thursday, according to a Reuters poll.
[to top of second column] |
With a few notable exceptions, like Brazil, inflation has been far
too low for comfort, and continues to fall, triggering surprise
central bank monetary easings from Canada to Sweden and Australia to
Indonesia over the past several weeks.
To many, that makes the Fed's continued focus on soon doing the
opposite seem out of step. But perhaps not for long.
"The outlook for some large emerging market economies such as
Brazil, Mexico and Russia has deteriorated but the meaningful
tailwinds of lower energy prices and global policy easing are likely
to persist," wrote Gustavo Reis, global economist at BofA-ML.
Much will depend on whether the euro zone, where some signs of
economic revival have drawn stock markets to multi-year peaks, can
sail through the latest bout of wrangling over its future without
too much damage.
The European Central Bank's bond purchase program announced at its
January meeting, worth 60 billion euros ($68 billion) a month, will
begin in March, many years behind its peers. But it may have arrived
at a particularly good time.
Any risk of investor flight over the outcome of heated negotiations
over Greece's debt burden and the future of the euro now will at
least have one of the world's largest central banks acting as a
backstop scooping up sovereign debt.
And the economic news is not all bad. The German Ifo business
climate index, due at the start of the week, is expected to rise for
a fourth straight month in February.
German gross domestic product (GDP) is also expected to be confirmed
as growing a solid 0.7 percent quarter-on-quarter in the final
months of last year.
"Europe's biggest economy is clearly entering 2015 with more
momentum than we and the consensus had expected," wrote analysts at
Morgan Stanley, who expect first quarter growth of 0.5 percent.
(Reporting by Ross Finley; Editing by Ruth Pitchford)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
