Brief Macro: The Nascent Democratic Primary: ‘How Best to Beat Trump?’ and more

In this briefing:

1. The Nascent Democratic Primary: ‘How Best to Beat Trump?’
2. BoE: Extracting the Policy Option Value of Delays

1. The Nascent Democratic Primary: ‘How Best to Beat Trump?’

Campaigning is underway in the Democratic Party’s lengthy ‘primary’ process for determining a 2020 presidential nominee.  Polls suggest that ousting President Donald Trump is the foremost priority for most supporters of the party.  Relative to past elections, the party boasts an extraordinarily diverse and energetic field of declared and potential contenders.  Meanwhile, the president is clearly vulnerable. 

Much depends, however, on whether the eventual challenger combines relatively centrist economic views with a persona that can bridge America’s yawning cultural divide.  Because of the country’s anachronistic electoral‑college system, a nominee remote from the mainstream could alienate independents in ‘swing states’ and inadvertently aid Trump.  Attention is therefore focusing on the questions of who can beat Trump – and how. 

2. BoE: Extracting the Policy Option Value of Delays

• The BoE MPC was unanimous in voting for no policy changes in Feb-19, as widely expected. Hawkish pressures remain in the Bank’s forecast, but the policy option value of a delay is high enough to tolerate them until after EU withdrawal.
• Downgrades to the Bank’s demand forecasts were surprisingly significant given the PMIs bias to overreact to uncertainty. Allaying those concerns is likely to be too difficult to do in time for a May-19 rate hike.
• I now expect the BoE to hike Bank rate to 1.0% in Aug-19, assuming a smooth exit from the EU in the interim. The data should seem better than the Bank fears by then, to the extent that the disinflationary effect of GBP appreciation is offset.