Central bank watch (TT Dec04 p10-11)

The PMI for Services indicator is a useful guide to measuring potential interest rate moves that could be made by a central bank. The US Fed would prefer inflation to rise in order to remove risk of deflation in the event of a new recession. There is enough slack in the US economy to indicate growth of 5% without inflation. Despite low European rates, corporate treasurers should expect euro short-term interest rates to stay below the curve. The slowdown in the UK housing market is likely to push the PMI for Services Index below 55.