Bankers Here and Abroad Focus on Tepid Inflation and Growth Expectations

This week’s economic data is being looked at through the prism of last week’s testimony by Fed Chair Yellen in which she indicated that the Fed is “watching” inflation (instead of considering sluggish inflation as “transitory”).    This week’s reports saw import prices falling 0.2%, oil prices dropping, and slowing retail sales.  These factors and the inability of Congress to pass health care legislation casts doubt on the major financial pieces of the administration’s agenda (tax reform/tax cuts and infrastructure) contributed to this week’s rally in Treasuries.  Now all eyes will be on Europe Central Bank President Draghi’s policy announcement and press conference tomorrow.  Eurozone inflation recently dropped to 1.3%, down from 1.4%, well below their 2.0% target (numbers are very similar to ours).  What markets will be watching are any hints as to when the ECB plans to stop buying bonds.  Remember that Draghi sparked a major spike in yield’s a couple of weeks ago on his use of the term “reflationary pressures” (as opposed to deflationary pressures).  This led to a global consensus (and fear?) that the world’s central banks were pulling back on accommodating policy.  Even though other officials sought to downplay that sentiment, markets were not convinced. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.