Recent Articles

Rate hike on the table, markets not yet fully convinced

Last week the Fed released the minutes from its April 26-27 meeting, in which they indicated that a second rate hike may come as early as this summer. This hawkish statement was consistent with an earlier interview of two Fed officials, Atlanta Fed’s Lockhart and San Francisco Fed Williams. In the interview, they indicated that the gradual path for the rate increase implied “two or three rate increases this year”.


The Fed, as was stated in the minutes, is now more confident about inflation moving to the 2% target. This in its turn calls for a hike, provided that the economy is doing well. To gauge whether the economy is strong enough, the Fed has set three conditions:


  1. Inflation continues to move towards the 2% target.
  2. The job market strengthens further, and
  3. Economic growth rebounds after a two-year low of 0.5% posted in the first quarter.


We have indicated in previous editions of Risk Insight...

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The Tax of Ultra-Low Interest Rates

We need some rethinking of the conduct of monetary policy. We have to wonder whether the current regime of monetary policy has a bias toward the creation of too much may lead to excess debt creation by giving the sense that accommodative policy will extend into the future…


Masaaki Shirakawa

Former Governor, Bank of Japan

March 2015


Ultra-low or negative rates are not the solution to the debt problem; rather they aggravate it, perpetuating the debt-driven growth model…


Herve Hannoun

Bank for International Settlements

April 2015


When Sir Robert Peel introduced an income tax in Britain in 1842 for the first time (outside of wartime), it was meant to be a short-term measure to make up for a temporary drop in import duties, and it was expected to last for no more than five years.  174 years later income tax is not only still with us, but it has increased from a rate of less than 3%,...

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Will the Fed hike before the election?

Last week’s Non-Farm Payrolls showed the US economy added the fewest number of jobs in April since September last year. Headline payrolls increased by 160,000 in April compared to a consensus forecast of 200,000 although the unemployment rate remained steady at 5%.


Unsurprisingly, the immediate market reaction was one of USD weakness as traders scaled back expectations of a possible rate hike in the months ahead. GBP/USD spiked higher from 1.4450 to 1.4540 while EUR/USD rallied from 1.1420 to 1.1480.


However, the initial USD weakness proved short lived as a deeper look at the numbers revealed a larger than expected uptick in average hourly earnings (+2.5% vs expectations of +2.4%). As such, both GBP/USD and EUR/USD reversed their initial rallies, slipping back to 1.4420 and 1.1400 respectively. 


Regular readers will know that we’ve been particularly fixated on average earnings in recent months as we believe that it was one of the key reasons...

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