Simply Economics

Global demand continues to recover more quickly than output which remains restrained by shortages of raw materials. For many countries the growth gap has yet to drive up final product prices but an exception may be the US where prices are indeed jumping as the country benefits from an early reopening that has yet to unfold in many other economies.

The basic message from global central banks is holding, that inflation pressures now building will soon fade and that rate hikes are still well down the road.

Federal Reserve communications are approaching the inflection point on when to signal the withdrawal of stimulus. For Europe, this pivot is still more distant given lagging vaccination rates and lagging economic performance.

Wild bumps for US data are due to comparison distortions, an effect that is expected to be temporary and which would not derail Federal Reserve plans for extended stimulus. Steady policy for the Swiss National Bank, given a falling franc, is also the expectation. Jeremy Hawkins and Mark Pender also discuss the UK's performance amid developing tensions with the EU over vaccine production and availability.

Despite the recent rise in long rates, neither the Federal Reserve nor the Bank of England are likely to make any QE adjustments. Covid cases have been coming down and vaccination rates going up in both the US and UK, in sharp contrast to the Eurozone where the outlook is becoming more uncertain.

With vaccines rolling out and Covid cases coming down, our team updates the outlook for inflation and long-term interest rates and what it may or may not mean for any changes in central bank policy.

Inflation may still be well below target but it is on the rise as are long-term interest rates. How these factors are affecting the financial markets and monetary policy and what they mean for central-bank communication strategy are points of this week's discussion.

This week's topic is whether central banks may begin to increase or decrease QE as a means of controlling exchange rates and the related risks that such action might bring to financial market stability.

Inflation expectations in the financial markets are rising quickly in contrast to actual inflation measures which are still subdued.

Brian Jackson and Jeremy Hawkins pull together the latest economic trends and discuss the importance to financial markets of the relative pace of the vaccine rollout.