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"What Could Possibly Go Wrong?" - Two Banks Answer


With much of the investing world preparing to take the next two weeks off for vacation right after Friday's payrolls number hits, one question being thrown around by traders is "what could possibly go wrong" in the immediate future?

Answering this question this morning are two bank economists, first, below we present the thoughts from UBS' global chief economist Paul Donovan.

What could possibly go wrong in the next fortnight? The world is in a rather dull mid-cycle economic position. This does not make for good television (hence the tendency to sensationalize dubious quality data), but it suggests a steady economic state.

The inflation story is nothing to get excited about. We have had the easily forecast rise in inflation as weirdly weak oil prices dropped out of the calculation. Now most developed economies have inflation rates around their long-term averages.

Policy-makers do need to consider the medium-term position. The tightness of labor markets will influence inflation (in the medium term, not in the next 24 hours). The Fed's summer camp for economists at Jackson Hole is the next opportunity to communicate clearly on normalizing policy in an utterly normal economic environment.

Politics continues to resemble a rather badly written daytime soap opera that no one would dream of admitting to watching, but which still seems to get viewers. Politics matters to longer-term trend growth rates. It does not matter much in the short-term cycle.

And here is Deutsche Bank's Jim Reid who, similarly, sees little reason to worry for the immediate future.

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