Economic Outlook – September 2014

The September issue of “Economic Outlook” is available on the tag “Economic Outlook” above or by following the link


From the Fed’s meeting: higher rates at the end of 2015: how to interpret?

Interest rates forecasts have shifted upward at the Fed’s meeting yesterday. The expected median fed funds was 1% at the June 2014 meeting, it was at 1.375% yesterday at the September meeting.
The graph below shows the cumulated distribution of participants’ forecast in June and in September. I also put on the graph the median figure for each forecast.There is an important shift of the median between June and September but distribution profiles are not so different. If we want to find a real gap between the two curves, we have to look at the point 1.875%. Four participants in September expect this level at the end of 2015. This reflects very different point of view between them and Janet Yellen. Continue reading

The Federal Reserve will maintain its rates low for a considerable period

The Federal Reserve has again clearly indicated that it didn’t want  pre-commitments on the moment when it will change its interest rates. That’s what we have to keep in mind from that FOMC meeting.
One year ago, the Federal Reserve and other central banks have developed the notion of forward guidance. Change in monetary policy was linked to a level of the unemployment rate and of the expected inflation rate. But it is the past. Now forward guidance is a single sentence that says Continue reading

Expected status-quo tomorrow for the Fed

The Federal Reserve has no reason to change its strategy tomorrow
The US central bank will continue to reduce its asset purchases as there are no elements that could push it to change its mind. But I do not expect that there will be an announcement or signal on interest rates. I don’t think that the sentence “low interest rates for an considerable period” will be removed or changed. It’s too early for that. Continue reading

Scottish referendum of 18 September: an open door to uncertainty?

Speech given at the Caledonian Club in London on September the 3rd

Reducing the gap between supporters of keeping Scotland in the UK and those favoring independence reflects both the passion around this issue, but also the limited period of time before the deadline of the 18 September. The YES progresses and the poll published this morning gives it at 47% against 53% for the NO (recent polls are here). Suddenly, the gap that seemed unbridgeable is dramatically narrowing. We need to keep in mind the 2005 referendum in France on the European constitution. The YES pranced for many weeks but eventually lost. The perception we can have of the Scottish referendum may be on the same dynamic. The impact of the narrowing of the gap can be perceived through greater nervousness seen in some segments of the financial markets. The pound was weakened and its volatility has increased.

Recent episodes on the separation of this type are few in developed countries. Two recent experiences are interesting to tell. Continue reading