Posts tagged 'Monetary Policy'

UK rates: this time will be different, for a while

The transition to a new normal monetary policy, by David Miles, Monetary Policy Committee member, click to read in full

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EM: the kevlar-gloved take

We’re coming to the end of a… multidirectional week for EM rates and currencies. BNP Paribas’ strategist here also pokes the media in the eye for “vying to produce the most bearish story on emerging markets…”

(Who, us?)

So we should note this dose of bullishness from the French bank: Read more

How to translate “QE” into German

First, rewrite history (as Aufhebung). Read more

We will see about the MPC

Who thinks UK base rates will go higher this year? We ask because Economics Editor Chris Giles made precisely that bold prediction in the FT’s collection of holiday prophesy.

Will the Bank of England raise interest rates in 2014?

Yes. It is fashionable to think this is an absurd question to which the answer is obviously no. But not for the first time, fashion sucks. The British economy is growing at an annualised rate of more than 3 per cent, unemployment is rapidly falling towards the Bank of England’s 7 per cent threshold when it considers rate rises and inflation has been above the central bank’s 2 per cent target for all of the past four years. The reason the BoE would keep rates on hold at 0.5 per cent amid a fast expansion is a rapid improvement in productivity, allowing recovery to coexist with an absence of inflationary pressure.

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A Stanley Fischer encomium

FT Alphaville is a little bit late to this appreciation of the outgoing Bank of Israel governor (and former deputy IMF managing director), penned by Peter Doyle — also formerly of the IMF.

But we think it should be read far and wide. (Click for the full doc) Read more

Fed wonk special, now with Q&A

Some prominent Fed Reserve Board staffers recently put out two weighty papers in advance of the 4th Jacques Polak Annual Research Conference which is hosted by the IMF starting on Thursday (today).

Paul flicked one paper up yesterdayThe Federal Reserve’s Framework for Monetary Policy –Recent Changes and New Questions — and the second — Aggregate Supply in the United States: Recent Developments and Implications for the Conduct of Monetary Policy — is hereRead more

‘It seems that the Fed now understands that tapering is tightening’

You’ve seen those who were (ahem) surprised by the US central bank’s decision not to start tapering this month… now read the words of one who got it right: BNP Paribas’ Julia Coronado, the bank’s chief North America economist and ex-forecaster at the Fed.

And interestingly, BNP think even December is in doubt: Read more

Carney confusion du jour

Barclays asks clients what they think every few months and the latest batch of answers from 799 dart throwing interns global investors show that they are ready, set and already yawning over the prospects for tapering by the Fed this week.

In the UK, however, who knows? Consensus came there none. Read more

The portable Summers

The Fed is his to lose, so here’s a useful service by Barclays rates analysts — quotes from Larry Summers on monetary policy, all the way from December 1986 to August 2013, all in one place. Click to enlarge.

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About those low rates in the UK until 2016…

First — GDP or unemployment as the slack indicator in forward guidance about low rates?

More on why the Bank of England chose unemployment (the 7 per cent threshold, not seen being reached until 2016), from the July/August minutes of the MPC: Read more

Guest post: Dual mandate — right goals, wrong agency?

FT Alphaville presents a guest post by Stephanie Kelton, chair of the Department of Economics at the University of Missouri, Kansas City. She is also editor-in-chief of New Economic Perspectives. She tweets under @deficitowl.

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Okay, we get it, BIS: fiscal policy is not your thing

The Bank for International Settlements says there’s a problem. Governments, by and large, haven’t done enough to address the issues that have emerged during/since the financial crisis. Some monetary policymakers have done rather a lot, but much of it is in unchartered territory and carries risks. So, says BIS, monetary policymakers should just stop it henceforth.

From the latest BIS annual report: Read more

When money multipliers become divisors

Alternative title: the slow death of the money multiplier.

Bank of America Merrill Lynch’s Michael Hanson and team note on Tuesday that while the world and its dog obsess about an upcoming QE exit, things continue to look pretty bleak on the money multiplier side of things. Read more

Monetary policy and US inequality, again

And the annual report from the St Louis Fed found that 62 per cent of the wealth recovery through the end of last year has been the result of rising stock markets — and stock ownership is concentrated among richer households.

Economix has a very good summary, and we also recommend last year’s paper by Edward Wolff, in which you’ll find this chart (click to enlarge): Read more

Stuff to do when stocks tank and forex goes haywire…

Yes, the Wall Street Journal caught our eye on Wednesday with The Federator, a fun retro-looking QE game that flies Helicopter Ben over Main Street USA, spewing cash.

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Inequality and monetary policy

Coincidentally (or not), three speeches that exemplify a renewed focus on inequality have been given in recent weeks by the three women on the Federal Reserve Board – Governor Sarah Bloom Raskin, Governor Elizabeth Duke, and Vice Chair Janet Yellen.

That’s an observation from Neal Soss of Credit Suisse in a note released at the end of last month, writing that inequality has increasingly appeared on the radar screen of monetary policymakers. Read more

The reserve requirement confusion

The following is a response from Peter Stella, former chief of monetary and foreign exchange operations at the IMF on the subject of reserve requirements and whether or not they pose an inflationary or credit expansion threat.

The note was penned as a response to an article by Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania, in the FT calling for the Fed to raise reserve requirements. Read more

Bank of England glasnost?

Remember the Bank of England audits? Launched in May last year. Covered banking rescues, the really super top-secret hush-hush banking rescues, and fan-charting.

The bank’s official response to them is out. Read more

Don’t kill the old, pander to them

“Whatever we can”, you say? Encouraging words from BoJ governor nominee Kuroda over the weekend (even if comparisons with Mr Draghi are overblown). If Cullen Roche is correct, what happens in Japan over the next year or many could change the future of economic policy. So it’s worth spending a bit more time on what Kuroda’s “can” might actually be.

We’ve argued already that much of the low-hanging fruit of expectations and verbal intervention has already been plucked. Read more

Exorcising eurozone ELA as we know it

Yes the IMF calls for common eurozone deposit insurance, in this new banking union paper. But also look at what they suggest on emergency liquidity assistance:

Lender of last resort. The lender of last resort makes liquidity support available to solvent yet illiquid banks. Centralizing all LOLR functions at the ECB would in the steady state eliminate bank-sovereign linkages present in the current ELA scheme (see Box 1). This would require changes to the ECB’s collateral policy, as by definition euro area banks that tap ELA cannot access Eurosystem liquidity owing to collateral constraints. Until such time as all banks are brought under the ECB’s supervisory oversight, ELA would be sourced through both the ECB (for banks brought under its purview) as well as national central banks (for banks that remain under national supervision, albeit with adjustments made to the national ELA limits).

Which would be nothing short of a revolution. Read more

A different case against the skills mismatch argument: irrelevance

Another excerpt from Janet Yellen’s speech today:

This possibility [of a skills mismatch between the skills of employees and the skills demanded by employers] and the unprecedented level and persistence of long-term unemployment in this recovery have prompted some to ask whether a significant share of unemployment since the recession is due to structural problems in labor markets and not simply a cyclical shortfall in aggregate demand. Read more

Joining the Establishment, UK NGDP targeting edition

Getting a favourable leader in the Economist is pretty Establishment, surely.

At the very least, it’s interesting that the red-top weekly has managed to endorse and explain a fairly specific nominal GDP target for the Bank of England. Read more

Has BoJ policy changed THAT much?

Are the BoJ’s newly-announced measures really that dramatic?

For all Shinzo Abe’s talk of urgency in meeting the new 2 per cent inflation target, the BoJ itself doesn’t actually expect it to happen that quickly. In the forecasts accompanying today’s statement, the BoJ has maintained the 2013 CPI forecast of 0.4 per cent made back in October — which is probably fair enough as the open-ended programme doesn’t actually start until next year — and only moved its 2014 up to 0.9 per cent from 0.8 per cent. Read more

Caption competition: Ben Bernanke

Ben Bernanke was interviewed Monday by Susan Collins, dean of the Ford School of Public Policy at University of Michigan.

As the NYT’s Economix blog notes, Bernanke seemed quite relaxed and even jovial…

Screenshot from Ben Bernanke at Ford School, Uni of Michigan Read more

How soon is now, UK NGDP targeting edition

All it takes — might not be very much. From the Bank of England Act 1998Read more

The definitive guide to the RBA’s ‘passive intervention’ in the AUD

A lot of ink has been spilled by various FX strategists over what the Reserve Bank of Australia is or isn’t doing with its FX transactions and whether this is or is not tantamount to printing money. The RBA isn’t ‘printing money’ but it is doing something… or rather, not doing something, as a way of signalling that it doesn’t like the Australian dollar being so strong. They’ve been given the opportunity to do this by a foreign central bank, but that’s neither here nor there. Read on for all the messy details…  Read more

Hey, Japanese government – leave the BoJ alone (says Koo)

The Bank of Japan’s unprecedented joint statement with the Japanese government after the central bank’s October meeting raised eyebrows around the world. The BoJ was already widely seen as having come under increased political pressure in recent months as the country’s economy had slowed; so what did the joint statement mean?

The statement contained a couple of key declarations: “The Bank strongly expects the Government to vigorously promote measures for strengthening Japan’s growth potential”, and “The Government strongly expects the Bank to continue powerful easing as outlined in section 2 until deflation is overcome.” Read more

‘Two plus two equals four, even at the Bank of England’

Credit Suisse’s answer last week to the (rather odd) idea of the British government “cancelling” (restructuring) the gilts held by its central bank under quantitative easing…

From the bank’s credit analyst William Porter, it’s worth a read:

Any financial problem can be solved at a stroke if double-entry book-keeping can be ignored as a constraint. The problem is, it cannot. So debate in the private-sector financial community about “solutions” to the UK’s financial challenges based on ignoring it worry us. In the UK, Mervyn King has been quick to debunk the fallacies. But if they can exist even for a while in the very simple UK, then the infinitely more complex euro area (which we do not address in detail here) is fertile ground for solutions based on fallacious reasoning…

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“Cancelling” QE debt

There’s something we’ve never quite got about this debate on “cancelling” all the government bonds acquired by central banks under quantitative easing, either for helicopter money or for debt relief.

Now the Governor of the Bank of England has weighed inRead more

Morgan Stanley on fundamentals versus monetary policy

Central bankers in the US and Europe may think they’re engaging in policies accommodative to economic growth, but two can play in this game of acronyms! The team at Morgan Stanley fights letters with letters, in a note released on Friday (emphasis ours):

Global central banks have done all in their power to rescue the financial markets from the doldrums. Markets have clearly noticed their unwavering intent to “do whatever it takes” and the open-ended nature of the response. Notwithstanding this central bank resolve and despite QE, OMT, et al., we remain strategically cautious. Our stubbornness is quite simple – fundamentals. On the other side of QE and OMT are IP, PMI, and GDP, which continue to look worse, not better. As such, the key to our call is very simple: we think poor fundamentals will trump central bank action. Time will tell. Read more