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…
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
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
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…
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 in: Read more
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
Here are the full ‘technical features’, which Mario Draghi read out at Thursday’s press conference. Three big things stick out:
- The ECB will apparently make a ‘legal act’ to confirm that its bond holdings under “Outright Monetary Transactions” are pari passu, not senior. Legislation signals a welcome precommitment, but a nasty fudge here: 200 billion euros of bonds held under the SMP (which programme has now been terminated) will not come under the pari passu rule. Read more
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.75%, 1.50% and 0.00% respectively…
This won’t be the main event of Draghi day. We’re 45 minutes away from details of the ECB’s bond-buying plan at pixel time. Read more
It’s no secret that we’re big fans of Andy Haldane on this blog.
Exhibit A — a paper given to this year’s Jackson Hole conference by the Bank of England’s executive director for financial stability, and Vasileios Madouros (also of the Bank). Read more
The biggest change is in the very first paragraph. In June the Fed had written that the economy “has been expanding moderately”. Now economic activity has “decelerated somewhat over the first half of this year.” Read more
It’s all very well bashing Bob and calling for bankers’ heads.
But we shouldn’t overlook another exceedingly important point about the Libor affair, as picked up by Claire Jones over on the FT’s Money Supply blog. Read more
Israel’s central bank had just cut interest rates at pixel time on Monday, easing by 25bps to a 2.25 per cent policy rate.
Why’s this one so important, we hear you ask. Read more
Ultimately, central bank independence depends upon having built a coalition of support in society for that independence – legislative rules and protections regarding the central bank’s ability to set monetary policy will change to reflect sustained variations in that degree of support, albeit with some lag. The only way for a central bank to defend its instrument independence is by making a persuasive case to the public, or at least to a majority of their elected officials, that it is doing a good job. That kind of transparent accountability has been the source of inflation targeting’s success in anchoring inflation expectations, which shows how this can work.
Thus, religious declarations of what assets a central bank should or should not handle in its pursuit of monetary policy goals, or of what constitute fiscal versus monetary policy, are shibboleths. They are mouthed with fervor but should not be taken seriously. What matters instead is that the goals of monetary policy being pursued are consistent with the central bank’s legislated mandate, that the means used in that pursuit are transparent to monitor, and that the central bank can and does explain why the means fit the goals. In short, monetary policy is like any other delegated public responsibility. Read more
Floating Rate Notes
As noted in the February quarterly refunding statement, Treasury believes that there are benefits to issuing floating rate notes (FRNs). In recent weeks Treasury has received a significant amount of feedback on the topic, in part through a formal request for information published in the Federal Register. Read more
Full statement below. Short version: “expanding moderately”, rates on hold, and a Lacker dissent. Bolded para is a copy and paste job from the last statement. Zzzzz.
Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable. Read more
1. The central bank bashing doesn’t start and end with Bernanke.
Central banks just about everywhere make fantastic political punching bags, and the popularity of this tactic is growing. For example:
Let’s start with “Federal Reserve Independence Day“ – March 4, 1951.
Nowadays… when financial repression is all the rage, people seem more interested in what caused the Fed-Treasury Accord of that year, rather than what happened after. Read more
Chart via Citigroup, bouncing off the latest UK GDP revisions downward (hat-tip Bond Vigilantes):
David Miles of the Bank of England has given a paper at the NABE conference in the States. It’s about central banks and government debt, and therefore quantitative easing looms large.
There’s a nicely short and sweet explanation of why the ECB’s three-year liquidity ops aren’t quite quantitative easing in the way the BoE does it, for a start… Read more
Deutsche Bank’s Jim Reid, Colin Tan, and Nick Burns have been musing over what we’ve learnt since the start of the crisis in a note released on Friday.
They review the anaemic growth that the crisis has wrought. And while they are a bit gloomy about austerity’s bite, and hence the limited scope for additional fiscal policy, they do single out one country’s response for praise. (Place your bets on which country that is, now!) Read more
The chairman of the Federal Reserve, listening intently to the House Committee on Financial Services, at pixel time. Ron Paul already brandished a silver ounce. It’s just not the same now that Ben does his own press conferences…
(C-SPAN feed here. Bernanke’s prepped testimony — free of QE hints, which seems to have surprised some — here. Caption the above if you wish…) Read more