The global interest rate cycle seems to be about to peak (of course at the ECB and in Japan it never really got started). The only thing which is surprising about this, is that anyone should be surprised. I am also convinced that Greenspan is nearly done at his end, and pretty much agree with Bill Gross, who “sees the Fed raising the rate on federal funds twice more, stopping at its August meeting at 3.5%”. I think one more quarter point is pretty much guaranteed (too much of a shock to the system if he doesn’t), the second one will be more debateable, just look what happened to the US bond market yesterday.
The Fed is really pretty much at the mercy of the ECB. Evidence for this? Well look at the impact of the Riksbank decision earlier in the week. I think you have to go back quite a distance to find a time when the financial world was waiting with baited breath to hear the latest prouncement from Sweden’s central bank governor. Or again, the entrails scrutiny on the BoE monetary policy committee minutes.
This process should have been fairly predictable, and once the Frankfurt/Washington consensus comes out of denial (that what is happening actually *is* happening) we can get down to the much more interesting little detail about *why* it is happening.
As Gross says “disinflationary forces are winning out”, now why would this be?