Who is to govern Italy?

Almost two weeks after the inconclusive election in Italy, the political jockeying is intensifying. On the right, La Lega’s Silvani has claimed the mantle in forming a new government as leader of the largest alliance with 265 seats in the Chamber of Deputies – well short of the majority of 316. Silvani has not softened…

Trade uncertainty reigns

Last Thursday, President Trump announced 25% tariffs on steel and 10% on aluminum. Two days later the President rejected all criticism insisting that for a country like the US, “trade wars are good and easy to win.” On Sunday, trade advisor Navarro said there would be “no country exclusions” and argued that “As soon as…

Trump’s protectionist agenda gaining steam

The resignation of Gary Cohn, National Economic Council director and free-trade defender, confirms that the protectionist wing of President Trump’s Administration has gained the upper hand. With the tax cuts done and nothing major on the legislative agenda, Trump has moved to implement his campaign promises on trade. The resurgence of trade advisor Peter Navarro…

Chairman Powell stays on message

The new Federal Reserve chairman Powell confirmed this week that the global business cycle and larger-than-expected fiscal stimulus has strengthened his assessment of the short-term US growth outlook. Markets responded by increasing the likelihood of four interest rate hikes this year, underscoring the importance of the meeting in March, when the first round of dot-plots…

US trade policies back in focus

The combination of tax cuts and spending bills is set to add substantially to the federal debt. Just how much will become visible in the coming weeks, when the Congressional Budget Office publishes a new ten-year budget forecast. It is not going to be pretty. President Trump has unveiled a framework for a big infrastructure…

Searching for clues

US inflation does not often attract attention, and the January CPI-inflation report was only interesting because financial markets are desperately searching for signs of accelerating inflation – and a central bank surprise. CPI inflation was a bit higher (2.1%) than expected (1.9%) but did not increase from December. Both food and energy prices increased, but…

United States: Fiscal hawks defeathered

After a brief shutdown of the government, the bipartisan spending bill passed the Senate by 71-28 and the House of Representative by 240-186. It now heads to President Trump who has backed the bill. Congress has until 23 March to itemize the agreed spending levels. With the deal, there will be no budget fights on…

Federal Reserve on the move

Federal Reserve sent a hawkish message at the January meeting, indicating that its assessment of the inflation outlook is firming. Markets have priced in three rate hikes in 2018 reflecting the current dot plot, but I expect upward revisions to all forecasts at the FOMC-meeting in March. Four rate hikes in 2018 should offer temporary…

The risk from Rome

With France moving in the right direction, the main political risk in the euro area stems from Italy. Parliament was dissolved on 28 December with elections taking place on 4 March. It is the first election under the new election law with a mix of a first-past-the-post system and proportional representation. The center-right alliance is headed…

The government reopens

It is rare that conservative and liberal media agree, but yesterday the headline “Democrats cave” was ubiquitous. On Day 3 of the government shutdown, Democrats accepted a vague promise from Senate Majority Leader Mitch McConnell (R-KY) to hold a floor debate after 8 February on DACA (the legal framework for Dreamers), if an agreement has…