The Daily Update - FED / Sir Winston Churchill

Last night Fed Governor Lael Brainard warned against moving too fast on any rate rises, cautioning that there were still concerns about the global economy that could impact the US. In a speech to The Chicago Council on Global Affairs she highlighted inflation concerns and global uncertainty saying this "counsels prudence in the removal of policy accommodation," adding that she “believed this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation."

In regards to the global economy, an area Brainard specifically pointed to was emerging markets, pointing out that "Downside risks are also present in emerging market economies, where growth has slowed rapidly in recent years," adding "Most importantly, China is undergoing a challenging transition from a growth model based on investment, exports, and debt-fuelled state-owned enterprises to one driven by consumption, services, and dynamic private businesses. Because of the adjustment costs along this transition path and demographic trends, Chinese growth will likely continue to slow."

Interestingly, she mentioned the Fed’s new ‘neutral rate’ believing it's lower than the Fed had anticipated previously saying "Perhaps most salient for monetary policy, it appears increasingly clear that the neutral rate of interest remains considerably and persistently lower than it was before the crisis” adding "To reconcile these developments, it is difficult not to conclude that the current level of the federal funds rate is less accommodative today than it would have been 10 years ago."

Her remarks have had an impact on the markets expectations of any rate hike. On Friday the implied probability for a September hike was at 30%, at time of writing this has moved down to 22% with December now at just over 57%, down from 60% on Friday.

Also in the news today is the introduction of the new £5 note in the UK which will be 15% smaller than the current note. For the first time ever the new note will be made of polymer, due to it being cleaner, safer and stronger, according to the Bank of England. The new note will feature Sir Winston Churchill on the reverse side to the Queen with a view of the Palace of Westminster and Big Ben in the background. Big Ben’s clock hands are at 3 o’clock, the time Churchill made his now famous “I have nothing to offer but blood, toil, tears and sweat,” speech in 1941 to the House of Commons. Anecdotally Sir Churchill’s former London home has also been put on the market with an asking price of £23m - or over 1% of the 440 million new ‘fivers’ in circulation.

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