UK money data also weak ex. LDI effect

UK money trends remain consistent with inflation normalisation, implying that further MPC tightening will unnecessarily prolong and deepen the recession.  The artificial boost to headline money numbers from cash-raising by LDI funds partially unwound in October – the Bank of England’s M4ex measure fell by 0.6% on the month after a 2.6% September jump.  As […] Continue reading

Weak Eurozone money data

A post last month argued that a pick-in Eurozone broad money M3 growth into September reflected temporary factors that would reverse. October numbers delivered the expected turnaround, with M3 falling by 0.4% on the month. Narrow money measures, meanwhile, lost further momentum, with Italian data particularly weak. The summer pick-up in M3 growth had been discounted here […] Continue reading

Are OBR forecasting swings destabilising UK fiscal policy?

The major fiscal tightening announced by Chancellor Hunt in the Autumn Statement was motivated by a markedly more pessimistic OBR assessment of medium-term prospects for the economy and public finances. Even if its latest forecasts prove “correct”, revisions on this scale between six-monthly forecasting rounds are questionable and result in undesirable volatility in policy-making. The […] Continue reading

When will the Fed start cutting rates?

A simple model of the Fed’s past behaviour suggests a shift in policy direction from tightening to easing in March 2023, assuming that the economy evolves in line with its forecasts. The Fed could delay cutting rates for several months but the model suggests a strong likelihood of action by Q3. The model is based […] Continue reading

A “monetarist” forecast for G7 inflation

The “monetarist” rule of thumb that broad money growth leads inflation by two years suggests a rapid fall in G7 CPI inflation in 2023 and an undershoot of targets by H2 2024. Annual growth of the G7 broad money measure calculated here is likely to have fallen below 3% in October, based on US and […] Continue reading

Unusual UK monetary movements

UK monetary statistics for September were heavily distorted by cash-raising by LDI funds to meet collateral requirements for derivative contracts.  The headline M4ex broad money aggregate surged by £91 billion, equivalent to 2.7% after seasonal adjustment, between end-August and end-September. Money holdings of non-bank financial corporations* accounted for £71 billion of this increase.  The long-standing […] Continue reading