The ECB did stuff last week, namely it cut rates while downplaying further cuts, tried to protect the banks under its care from negative rates and pledged to boost its balance sheet.
That was considered, after some confusion, impressive by markets, amongst other things because of the ECB’s shift to buying up private assets — “investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area are to be inccluded in QE,” as Deutsche summarised while others wondered aloud about what else the ECB might end up buying. Read more
Economics blogger Ben Bernanke wrote today on why interest rates are lower than they’ve been in the past. His argument is that changing estimates of future growth and inflation are to blame, rather than an overly activist Fed. While we have some sympathy for this view, we’re struck by the fact that it partly contradicts what Bernanke said when he was actually at the Fed.
In particular, compare this passage from Bernanke’s recent post (emphasis ours): Read more
The ECB just announced it will increase monthly buying of assets by €60 bn which will continue until September 2016, and will do so on a risk-sharing basis on 20 per cent of the assets purchased rather than on an entirely pooled based. More details: Everywhere.
For now, here’s the first comment in our inbox from Marc Ostwald at ADM Investor Services, who says the risk sharing component is limited: Read more
This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
Over the past few years some quarters of the financial commentariat have taken to describing the Federal Reserve’s asset purchases as the monetisation of US national debt, something which has given rise to all sorts of misguided fears about inflation and much else.
While the Fed certainly have been purchasing extensive amounts of government debt in the secondary markets it is perhaps misleading to assume that these markets would not otherwise be buoyant without such intervention. Read more
We love the BoJ’s no-nonsense approach to amendments. If you’re doing something wrong, or not doing enough, just cross it out and change it:
Daniel Tarullo, one of the five governors of the Federal Reserve board, says the central bank should consider large scale purchases of mortgage-backed securities if the economy does not improve, the FT reports. “A large-scale MBS purchase programme has many of the benefits associated with purchases of longer-duration Treasury securities, such as inducing investors to shift to other assets, including bonds and equities. But it could also have more direct effects on the housing market,” Mr Tarullo told an audience in New York on Thursday. The WSJ says the Fed is ‘poised for more easing’ as officials begin to build the case for MBS purchases, although it adds such a move is not a certainty and the bank appears unlikely to move quickly.
Not price-keeping, but signalling at the Bank of Japan .
Nikkei reports on Monday that “Japan’s stock investment community is buzzing with rumors about the Bank of Japan’s ’1% rule’.” Readers will recall that the BoJ started buying ETFs and JReits late last year, as part of a new, larger, attempt at credit easing. The move was a pretty big deal for the central bank. At the time, ETFs were estimated to have 13 times more risk than five-year US Treasuries Read more
‘The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months,’ reports the WSJ on a likely Federal Reserve shift to QE next week. As FT Alphaville notes, the WSJ has been conveniently accurate in its forecasts ahead of key Fed decisions over recent months. That, combined with a ‘few hundred billion dollars’ being apt to disappoint markets that have been pricing in more like a trillion dollars, has led the dollar to strengthen across the board, the FT reports. As Reuters observes, an initial QE commitment of $500bn over five or six months has so far taken up most market predictions, with the FT noting that easing beyond that point was still in doubt. The WSJ piece may change that calculus. Meanwhile, Tim Duy at Economist’s View argues that the Fed’s comms policy is in disarray.