Global Growth Divergence – PMI Signals and Copper Anomaly
Key Questions
What is the Fed task force reviewing?
A group led by Rajan, Stein, and Dynan is examining balance sheet constraints and limits on faster QT. The review focuses on liquidity dependency and maturity risk.
How large is the current Fed balance sheet compared to pre-COVID?
It remains 60% above pre-COVID levels despite a $2tn runoff, indicating a structural overhang. Runoff has been on hold recently.
What insights does economist Jai Kedia provide?
Kedia's rules-based approach to a smaller balance sheet aligns closely with Warsh's task force priorities. It offers a potential roadmap for future Fed reforms.
Are tariffs driving the latest inflation surge?
Tariffs are not causing an inflation surge but rather a trade-down effect. This distinction is important for the ongoing policy review.
How does the balance sheet review influence rate path expectations?
It reinforces higher-for-longer expectations by highlighting QT limits. The findings serve as a key input for the Fed's broader policy decisions.
Empire State Manufacturing surged to +20.6 (strongest since 2021), adding growth divergence. Global PMI at 52.6 shows broad growth acceleration but euro area inflation reaccelerating. Dr. Copper at record high on supply constraints and AI demand. India PMIs and UK jobs report add context.