Nonsense is a rude word. But there isn’t a milder way of describing the Bank of England’s estimates of UK labour market slack.
For three inflation reports in a row, the BoE has published a chart (below) showing its model of labour market slack with accompanying text highlighting its great importance in the monetary policy decision. “One of the key determinants of inflationary pressures in the economy is spare capacity or slack – that is the balance between demand and supply,” the November inflation report states. Read more
Sweden’s Riksbank cut its key interest rate to zero last week because inflation was too low. The Riksbank has been noted – and criticised – for raising rates in 2011 to tackle a credit and housing bubble. Peter Doyle, an economist and former mission chief for Sweden for the IMF, argues that the recent experience of the world’s oldest central bank has more to teach policymakers.
One view of the Swedish Riksbank’s cutting its repo rate to zero is that this is a defeat for the use of monetary instruments to lean against financial fragilities. That conclusion is premature. It misses three more important implications for other monetary policymakers. Read more
(The chart frames the upper and lower forecasts of the central tendency, which removes the highest three and lowest three forecasts of the FOMC as a whole. The red line is the midpoint between the two.)
Starting in 2009, the midpoint of the central tendency projections for the long-run unemployment rate climbed from 4.9 per cent to 5.6 per cent during the next three years. Read more
One private equity chief went so far as to publicly thank Ben S. Bernanke, the Federal Reserve chairman until last month, whose program of extraordinary economic stimulus has helped push stocks higher, feeding the private equity machine.
“Thank you, Ben Bernanke. I saw him last Thursday, and I thanked him,” Mr. Schwarzman of Blackstone said during a conference in December. “The opportunity for us to be able to attract funds is very, very high.” Read more
What happens when you raise rates by 2.5 percentage points, within a period of six months, for an economy that might only grow 0.2 per cent this year?
We’re not sure. Read more
The transition to a new normal monetary policy, by David Miles, Monetary Policy Committee member, click to read in full
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…”
So we should note this dose of bullishness from the French bank: Read more
First, rewrite history (as Aufhebung). Read more
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.
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
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 yesterday — The 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 here. Read more
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
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 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.
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
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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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
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
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
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.
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 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
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
“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
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
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
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
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
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…