A week may be a long time in politics. But in economics, fortunes can change in minutes. Both the US and UK interest rate-setting committees issued the records of their most recent deliberations, and there was further evidence of an improvement in the european economy.

Semantic overkill

The Federal Reserve has been doing a good job for some time managing market expectations of interest rate decisions. It is the minutes of those rate-setting meetings that have been most eagerly anticipated of late - keen as traders are to perceive a signal that the Fed’s steady tightening may be coming to an end.

So there was great excitement from commentators on Tuesday - though, strangely, not in the bond markets - when the FOMC said some of its members had begun to warn against overkill. Coupled with comments that some members also thought the US housing market might be slowing, the comments left analysts initially to pronounce the report more dovish than expected. The next day many had changed their minds.

‘Tis the season to be spending

The possibility that the Fed might be nearing the end of its rate rising cycle would have been well received by US retailers as they prepare for the crucial festive shopping season - starting with Black Friday, the day after Thanksgiving when shop tills ring a profit.

They may also have been cheered by the latest consumer confidence data released on Wednesday. The University of Michigan’s index of consumer sentiment increased to 81.6 in November compared with a reading of 74.2 the month before as the memory of the hurricane season dissipated and the price of gasoline retreated.

Nine votes for status quo

There was even less for traders to get excited about when the minutes of the Bank of England’s Monetary Policy Committee were released.

Explaining its reasons for keeping rates on hold at 4.5 per cent at its November meeting, the MPC stressed the risks surrounding the prospects for growth were evenly balanced and that there was a considerable degree of uncertainty regarding the risks for inflation. The vote was 9-0 in favour of the committee staying its hand.

Traders felt there was little new of substance for them to get their teeth into, but those eager to see a reduction in rates latched on to a difference of opinion within the committee about the pace of future demand.

League form

There was some good news and some bad news for UK chancellor Gordon Brown as he prepares for his pre-Budget report on December 5.

Figures from Eurostat, the statistical agency, showed the UK had slipped to 18th in the European league of economic growth. In 2001, the UK had the 12th fastest growing economy of the current 25 EU members. But it’s been downhill since then: it was 13th in 2002 and 15th last year.

But Mr Brown would have been cheered by news on the public purse. Government finances were given a boost in October after an increase in corporation tax receipts allowed the chancellor to run a £2.2bn surplus. However, analysts noted that Mr Brown would still need to borrow more than his forecasts.


The euro suffered a whipsaw response to comments made by Jean-Claude Trichet, president of the European Central Bank either side of the weekend.

The single currency jumped on Friday after Mr Trichet mentioned out of the blue that the ECB was “ready to take a decision on interest rates.” Markets took this to mean a rise next month would signal a sequence of increases. Cue the euro to fall back on Monday after Mr Trichet made clear his previous statement did not mean the central bank had plans for a steady tightening of monetary policy.

Look east

It seems that it is not just the US that might need to keep a wary eye on its balance of trade with China. More data from Eurostat showed the eurozone trade surplus touched €1.4bn in September as exports rose 0.3 per cent and imports fell 0.7 per cent. But from January to August, the single-currency bloc’s trading account with China has registered a deficit of €45.3bn, a rise of 48 per cent over the same period in 2004.

Shrinking surplus

Japanese output was weak in September, falling 0.4 per cent month-on-month compared with a 1.2 per cent in August. There was also a decline in the nation’s trade surplus. The seventh straight monthly year-on-year fall saw the surplus decline by 28.8 per cent to ¥822.1bn, as oil prices kept costs of imports high. However, exports to China rose by 12.8 per cent to a record ¥831.9bn.

Get alerts on Federal Reserve when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article