Nervousness about policy

20 Feb 2025 2 min read

Daily update

The minutes of the January Federal Reserve meeting gave a cautious policy outlook. Nervousness about the economic consequences of US President Trump鈥檚 policies was clear. In particular, the potential for Trump to ignite a further wave of inflation was cited. Companies seem more willing to pass on import tax increases to end consumers than in Trump鈥檚 first term (perhaps because consumers have become more accustomed to price increases). The potential for profit-led inflation may exaggerate that.
Trump did suggest that a trade deal with China was possible (this was a casual remark to reporters). Given Trump鈥檚 trend towards rather eccentric comments鈥攍ikening himself to a King yesterday鈥攊nvestors are inclined to apply a large discount to the president鈥檚 pronouncements.
German producer prices fell on the month in January, and inflation was lower than expected (albeit there are relatively few forecasts that make up the consensus). In contrast to the Fed鈥檚 concerns about inflation threats, the European Central Bank is still weighing disinflation forces.
The UK CBI business sentiment data is potentially distorted by disgruntlement over taxes (although real world micro-level data shows reasonable activity). Answers to the US Philly Fed business sentiment survey are likely skewed by which television channel respondents tune into.