Ahead of Wednesday’s FOMC meeting, the Economic Cycle Research Institute (ECRI) released its weekly leading index (WLI), which increased 1.1 points to 138.1 in the week ending July 15. Positive financial components as well as a solid labor market and wage growth led the increase.

The WLIg, which is the headline figure’s smoothed annualized indicator, shows a robust reading of 7.5 percent that indicates considerable growth can be expected in the next two to three quarters. The WLIg stands at its highest level in more than 3 years.

This is important because the latest Citigroup’s U.S. economic surprise index hit its highest level since December 2014 and now stands substantially higher than where it was when the Fed first hiked its Fed funds rate by 0.25 percent in December of last year.

The World Economic Surprise index, the MSCI World index (a stock market index of 1,643 world stocks), and the Emerging Markets FX index are higher than where they were in March, when the FOMC’s non-action caused a spectacular reversal of Fed rate-hike expectations and that translated into a 50 basis points cut from its Fed rate “path.”

Those indexes also are all higher than where they were on June 23 when the U.K. referendum of the Brexit result favoring leaving the EU that caught most of the world by surprise.

I don’t think it’s an overstatement to say that what was expected to be a fairly benign FOMC meeting this week has taken on sudden importance as resurgent markets and U.S. economic data have again put the possibility of a Fed rate hike this year back on the table.

Also, during this short post-Brexit period, we haven’t seen any significant dislocation taking hold besides the fact that the British pound has lost about 10 percent from its pre-Brexit levels, which at the end of the day should be not that bad for the British economy and could make U.K.’s currency enviable for the weaker Euro area economies such as Italy, Portugal, etc.

Please take care, the fallout from Brexit isn’t over yet, not by a long shot. And as far as foreign-exchange trading is concerned, we should expect a further downward trend of the British pound over the coming years.

Coming back to this week’s FOMC meeting, it will be what is written in its their statement that will be very important.

That said it might be helpful recalling a few recent hawkish biased statements of some Federal Reserve members:

• Cleveland Fed President Loretta Mester said on July 11: “I am comfortable we are not behind the curve but I do think a gradual ‘upward tilt’ in interest rates is appropriate for the US economy ... but the timing or the actual slope of that path will depend on how the economy evolves.”
• Kansas City Fed President Esther George said on July 11: “The economy is at or near full employment ... And yet short-term interest rates remain at historic lows. Keeping rates too low can also create risks.”
• St. Louis Fed President James Bullard said on July 12: “The policy rate would likely remain essentially flat over the forecast horizon to remain consistent with the current regime.” Bullard also sees the appropriate federal funds rate as 0.63 percent, about a quarter point above the current effective rate of around 0.37 percent. 
• Philadelphia Fed President Patrick Harker said on July 13: “Considering the economic projections, I anticipate that it may be appropriate for up to two additional rate hikes this year.”
• Finally, the G-20 finance ministers met in Chengdu, China, and said they were worried because global economic growth continues to slow and monetary policies do not seem to work, especially in restoring the levels of economic growth that we have known before the Great Financial Crisis. 

It’s amazing that after the Great Financial Crisis of 2008-2009 they still get surprised.

We’ve definitively come into a world that is plagued with, among other things, overcapacity everywhere.

All of us — and this is important for long-term investors — will have adapt to a lower growth global environment for quite some time to come. Such dismal economic growth will put stress on globalization and trade issues.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.