Key Takeaways
- Federal Reserve Governor Miran maintains that current interest rates are still moderate and policy remains restrictive due to a decreasing neutral rate, while anticipating significant shelter disinflation through housing. He also stated that current data does not show widespread inflation rising due to tariffs.
- The U.S. S&P Global Services PMI for September registered 54.2, revised higher from a preliminary estimate of 53.9, indicating robust growth in the services sector. The Composite PMI also rose to 53.9.
- ECB's Isabel Schnabel and BOE Governor Andrew Bailey underscored the critical role of financial regulation, with Schnabel urging governments to avoid a deregulation race and Bailey pushing back against arguments that post-crisis regulation stifled productivity growth.
- Canada's S&P Global Services PMI fell to 46.3 in September from 48.6, marking a third consecutive contraction and the weakest reading in three months. The Composite PMI also declined to 46.3 from 48.4, indicating a tenth consecutive monthly contraction in private sector activity.
Federal Reserve Governor Miran offered a nuanced perspective on current monetary policy and inflation, stating that interest rates are not yet restrictive for too long, suggesting they remain moderate. He emphasized that despite seemingly loose financial conditions, policy remains tight because the neutral rate is decreasing. Miran believes the neutral rate has fallen to the lower end of the Fed's estimated range and does not think it is zero. He is also expecting significant services disinflation, primarily driven by housing.
On the issue of trade, Miran noted that there is no widespread inflation rise due to tariffs, and their adverse effects tend to impact other countries more than the U.S.. He also asserted his independence, claiming that former President Trump has never asked him to take specific policy action. Miran views his role as providing fresh, out-of-consensus ideas. He highlighted the importance of financial conditions in the transmission of monetary policy and indicated a willingness to adjust the policy outlook if inflationary pressures do not emerge.
Meanwhile, economic data released for September showed a resilient U.S. services sector. The U.S. S&P Global Services PMI registered 54.2, a stronger performance than the previous 53.9 and exceeding the estimated 53.9. The U.S. S&P Global Composite PMI also improved to 53.9, up from a previous 53.6 and above the 53.6 estimate. This suggests continued expansion in the broader private sector, despite some softening in business activity growth and rising input costs due to tariffs.
In contrast, Canada's private sector activity experienced further contraction. The Canada S&P Global Services PMI for September fell to 46.3 from 48.6 in August. The Composite PMI for Canada also recorded 46.3, down from 48.4 in August, marking the tenth consecutive month of declining private sector activity. This downturn was attributed to a lack of new business, particularly from exports, and the impact of tariffs.
Across the Atlantic, central bank officials weighed in on financial regulation. ECB Executive Board member Isabel Schnabel stressed that governments should avoid a deregulation race to protect the economy. Similarly, Bank of England Governor Andrew Bailey pushed back against the argument that post-crisis financial regulation has caused a fall in productivity growth by restricting business investment. Bailey asserted that there is no trade-off between financial stability and objectives like growth and competitiveness. He also highlighted the growing risk that as pro-cyclical tides turn, central banks may be inhibited from collecting necessary data in new areas of risk, and warned against arguments to change financial regulation being solely "interest-based".
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.