US Slow Sizzle, UK Slow Boil (03.12.15)

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US Slow Sizzle, UK Slow Boil

  • The theme of monetary policy divergence amongst major central banks is likely to become more pertinent.


  • The US Federal Reserve is inching towards a likely policy rate hike on 16th December. At the other end of the scale, a number of European central banks have negative policy rates and the ECB will likely announce an expansion and/or extension of its current QE program and possibly a further cut to its deposit rate at its policy meeting on 3 December.


  • Somewhere in the middle is the broadly neutral Bank of England (BoE), which has oscillated between mild hawkishness and mild dovishness in the past year.


  • But interestingly the US and UK economies have similar CPI-inflation, GDP growth and unemployment rates of around 0%, 2.5% and 5% respectively.


  • While one could make the case that the BoE and markets are slightly too dovish about the need and prospect for UK rate hikes, I would argue that ultimately the Fed’s hawkishness relative to the BoE and the market pricing of Fed hikes seems broadly fair, for six reasons detailed in the attached presentation.
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