Central Banks in a “Wait…What-Do-We-Do-Next” Mode

U.S. Review

June Reports Paint a Positive Picture of the Economy

• With the exception of housing-related releases, it was a pretty light week for U.S. economic data. The June reading for housing starts came in better than expected, with gains in multifamily and single-family starts. Existing home sales also posted an above consensus reading, with the level registering its strongest pace since February 2007. That said, inventories remain at a historically low level.
• The Leading Economic Index, which is an input into our recession probit model, also posted favorable results in June. The probability of a recession in the next six months remains low, with the model suggesting less than a 5 percent chance.

Global Review

Central Banks in a “Wait…What-Do-We-Do-Next” Mode

• From the United States Federal Reserve passing through the Bank of England (BoE), the European Central Bank (ECB), the Brazilian central bank, etc., monetary policy remains at a standstill. Some of these central banks may be waiting to see if there will be some help coming from the fiscal side of the policy equation, i.e., the BoE, while others, like the central bank of Brazil, may be waiting for its country’s government to stabilize its own fiscal accounts.
• The only central bank that seems to have no doubt about where to go is the Mexican central bank, which increased its target rate on June 30 by a more-than-expected 50 basis points, taking the target rate to 4.25 percent.

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