To paraphrase the great Garrison Keillor, "It's been a quiet week in the FX markets." Not that I am complaining, mind you. I prefer a quiet week to one that starts with the threat of nuclear war and ends with neo-Nazi violence.
The markets are waiting for meaningful headlines out of Jackson Hole, Wyo., where the world's major central bankers are meeting.
In many ways, the news is good. For instance, this week we saw that for the first time since the great recession, all 45 countries monitored by The Organisation for Economic Co-operation and Development (OECD) are expected to grow. My colleague Garrett D'Alessandro, at City National Rochdale, has a great take on this in the latest Market Perspectives.
But since it seems that economists cannot live without a problem to solve, one of the hot topics at the meeting is the lack of inflation in world economies.
Below are the inflation targets for major central banks and global inflation rates in 2017.
The reasons behind this persistent low inflation are undoubtedly complex, which is one reason it will be a big topic in Jackson Hole. From a consumer perspective, low inflation is not typically considered a problem, and it certainly is preferable to high inflation or disinflation.
But what seems to be happening is that post-recession economies have seen a fundamental structural shift and central banks need to figure out what that means in order to apply effective policy.
One cause of low inflation is low wage growth. The data point to the fact that even with low unemployment and a good economy, wages are not rising as they would in a typical recovery.
Another theory circulating is that technology disrupters have again changed the basic make-up of the global economy. Anytime Amazon moves into a new business arena the established players need only look at vacant storefronts to know that their days may be numbered.
Are price transparency and efficiency causing inflation to stay low? Maybe so.
And while we think of Amazon, Uber, Airbnb and the like as uniquely American, their influence is global. Two of the well-known disrupters – Amazon and Apple – generate 40 percent and 55 percent, respectively, of their revenues from outside the U.S.
There may not be definitive answers just yet but we certainly have some good economic debates on tap for Jackson Hole – and beyond.
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