Saturday, 16 March 2013

US economic data mixed, more monetary stimulus to come

US economic data on Friday were mixed.

Industrial production rose 0.7 percent in February, the most in three months. The Federal Reserve Bank of New York’s Empire State index fell to 9.2 in March from 10 in February but showed expansion for the second consecutive month.

However, the Thomson Reuters/University of Michigan preliminary sentiment index for March came out at 71.8, well down from 77.6 in February and the lowest level since December 2011.

A jump in consumer prices may also affect consumer demand. The consumer price index rose 0.7 percent in February as gasoline saw the biggest jump in price in more than three years.

Despite the rise in consumer prices, the Federal Reserve is expected to hold its course on stimulus at its monetary policy meeting next week. This, in turn, is likely to put pressure on other central banks to maintain monetary stimulus, according to PIMCO's Mohamed El-Erian. From Bloomberg:

The Federal Reserve’s record monetary stimulus has compelled central banks from Mexico to Japan to follow suit, said Pacific Investment Management Co.’s Mohamed El-Erian.

The Fed’s “artificially low” benchmark interest rate has put upward pressure on several currencies, threatening to erode the competitiveness of those nations’ economies, El-Erian, chief executive officer of the world’s largest manager of bond funds, said in a speech today in Stanford, California. “Ultimately, they are forced -- Mexico has been forced, Brazil has been forced, Korea has been forced, Japan has been forced -- into doing exactly the same thing” as the Fed.

Indeed, Japan's parliament on Friday confirmed the appointment of Haruhiko Kuroda as Bank of Japan governor. Having earlier vowed to do “everything possible” to reverse falling prices, Kuroda is widely expected to ease monetary policy in Japan more aggressively.

And in the UK, there is talk of a change in the Bank of England's remit to allow greater monetary stimulus.

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