Imagine if we allow a fleeting thought, carried by the winds of our neurons, to assert that we are living in the 'world of the dollar'. We would be succumbing to the seductive grasp of this notion, merely considering the American dollar as a reliable refuge due to its renowned resilience. However, as the summer heat compels me to engage in a deeper reasoning, I find myself drawn to a different perspective, not necessarily more accurate, but certainly more thought-provoking.
The current one is the world of the dollar because, to tell the truth, it is, in reality, nobody's world.
This week is fun and exciting. Given the context, we certainly can't bother Leopardi[1] and ask him to write a sonnet to remind us what will happen. The fireworks will come from the Federal Reserve, Bank of England and Bank of Japan meetings. Bets are accepted. Countless macroeconomic indications will peak on Friday when the numbers on the labour market will arrive from the United States. What do I expect from the central banks? Jay should keep his hands in his pockets around Threadneedle Street and Nihonbashi. To date, all central banks are under the threat of a loose cannon named Donald Trump. Lately, on the market, the yield of government bonds (which have grown) discounts the hypothesis that a Republican majority supporting the next government could implement political measures that would result in the widening of the US deficit and the increase in inflation. Trump has already declared his intention to weaken the dollar. Still, the fact remains that the tariffs (which have already been promised) could instead strengthen it, without forgetting that the tariffs would have the consequence of increasing inflation since domestic costs would improve immediately.
To recap: The American economy continues to grow, but prices have slowed, although less than expected. This is an ideal situation to evaluate a rate cut, but certainly not this week, but in September.
Let's try to see what the atmosphere is like in the meeting room of the Eccles Building in Washington. I understand that growth in the United States continues to be based on debt, so, for now, the Fed will maintain the status quo on interest rates despite the green light (in favour of cutting rates) given by the latest data on US inflation, released last Friday: the data, among other things, Jay's favourite, namely the PCE core index. Of course, we are not talking about a stellar result but rather a figure in line with the findings dating back to May, and this confirms the presence of a disinflationary process underway. I do not feel like going down an oracular path regarding the characteristics of the cuts between now and December (if there will be cuts); I do not have the stigmata. As a good Leopardian of the first hour, I limit myself to considering that all this enthusiasm regarding a hypothetical group of two/three cuts between now and the end of the year seems exaggerated. Why?
Let’s explore