The minutes of two central bank monetary policy meetings were released yesterday: Bank of England in the morning and the Federal Open Market Committee (FOMC) in the US in the late afternoon (GMT).
In the UK, the concerns relate to inflation, or the lack of it, and the danger of a rise in house prices in the second half of 2015. The members of the BoE Monetary Policy Committee (MPC) judge that if energy prices do not start to fall again and if there is no “sharp movement” in exchange rates, then inflation will not fall further. It would not need to, as it is less than zero at present.
The minutes also show that the committee sees faster growth coming in the UK economy in the second quarter of 2015, after a slow start to the year.
With regard to a rise in core interest rates, the minutes noted that it was “…more likely than not that the Bank Rate would rise over the three year forecast period”. This is not telling the Forex market much as three years is an eternity as far as it is concerned. However, this language is consistent with the desire of the central bank that there would not be any sharp moves in exchange rates involving the Pound Sterling. The moment there is talk of anything approaching imminent core interest rate rises, the Pound will get all the “sharp movement” it can handle.
More of the same in the USA
Over in the USA, Fed policy makers have at least started talking about a possible schedule of core interest rate rises – that is whenever they finally decide to start such an exercise. Recent poor economic figures are still attributed to “transitory” events, to wit: severe winter weather, a dispute which closed West Coast ports to export shipping; and a pattern of weak Q1 data over recent years (This last has already started a vigorous debate between private and public sector economists in the US as to the accuracy or otherwise of the seasonality factors that have been applied to GDP in order to compensate for the winter storms in the annualised figures).
Following the minutes’ release, most commentators now hold out no hope at all for a rate rise in June, and September is also looking decidedly less likely. That would mean no rise at all this year.