The latest data, and still-accommodative financial conditions, suggest the Fed does not have to cut rates aggressively.
Practically speaking, no one should expect any ECB tightening at all until some time in 2022.
Without a forecast, the Bank of England is without a clue about whether there will be inflation on March 29, or thereafter.
The ECB’s plan for ending asset purchases hinges on a questionable CPI forecast.
Maybe the U.S. economy can sustain an unemployment rate as low as 3.5% without a persistent upward bias to inflation, but we are highly skeptical.
The possible need for policy to get restrictive, not just neutral, is likely to become a regular talking point for Fed officials in the months ahead.
Could a sales tax hike in October 2019 help the BoJ finally reach its inflation goal?
Could a rise in the U.S. labor market participation rate help stop the uptrend in inflation? Not likely.
How much do changes in oil prices and exchange rates affect inflation? Not much.
Our bet is that the ECB will maintain accommodative monetary conditions into 2019 at least.