Policymakers take divergent paths toward rate exit 14 Dec 2023 Central banks in Europe and the US left borrowing costs untouched this week. But the latter went a step further and unexpectedly promised cuts. In this Viewsroom podcast, Breakingviews columnists explain how ratesetters, who were slow to tackle inflation, could be laggards again.
Powell was pragmatic; Lagarde will have to be 14 Dec 2023 The European Central Bank, like the US Federal Reserve, left its rates unchanged. But unlike Fed Chair Jay Powell, ECB boss Christine Lagarde didn’t imply that lower inflation meant looser monetary policy. A slowing economy and abating price pressures will push her there in 2024.
Last word of 2023 goes to Jay Powell 12 Dec 2023 Investors are pricing in 1 percentage point of US rate cuts next year. The Federal Reserve doesn’t want that, so its chair needs to talk up inflation on Wednesday. If markets keep ignoring him, rallies in stocks and bonds will continue, but the central bank’s job will get harder.
BoE is a more credible rate-cut sceptic than ECB 12 Dec 2023 Policymakers in London and Frankfurt are unlikely to touch borrowing costs this week. Their challenge is to persuade markets they are not about to start slashing them. Bank of England Governor Andrew Bailey has the easier task, but only because the UK is in worse economic shape.
Central bank blunders undermine tough rate talk 5 Dec 2023 Federal Reserve Chair Jay Powell and his peers say borrowing costs will stay high to curb inflation. Markets are ignoring them, pushing bonds to their biggest monthly gains since 2008 on hopes of easier policy. Past mistakes by policymakers suggest traders' scepticism is correct.
Bank of England drags Bagehot into the shadows 1 Dec 2023 The 19th-century economist recommended lending freely to stem financial panics. Now watchdogs are pondering how to apply this principle to financial markets dominated by bond investors and unregulated entities. The UK central bank has an idea, but it only works in some cases.
Forex swings will upend lucrative yen carry trade 1 Dec 2023 Investors who borrowed Japanese currency and invested in dollars or, even better, Latin American assets, have been enjoying big returns. Yet expected changes to monetary policy in the US and far east point to more volatility. Bets on diverging interest rates will get riskier.
The future of interest rates is more surprises 24 Nov 2023 The return of inflation surprised central banks which until recently predicted rates would remain “lower for longer.” Economists and investors struggle to agree on what has changed or what will happen next. Those who assume current interest rates are normal may be in for a shock.
Labour is weak link in Israeli economic defences 14 Nov 2023 The Middle Eastern country has withstood the financial pain of a war with Hamas, William Wechsler at the US think tank the Atlantic Council says in this Exchange podcast. But as the conflict continues, an increasing labour shortage will pile pressure on the economy.
Hong Kong finance summit tiptoes around China 9 Nov 2023 Executives from Apollo’s Marc Rowan to UBS’s Colm Kelleher gathered in the Asian city to debate markets, debt and regulation. Yet few mentioned slow growth and slumping real estate across the border. For firms straddling the geopolitical divide, some topics are best avoided.
Japan’s rates tweak is careful and crafty 2 Nov 2023 The central bank changed its policy to allow higher 10-year bond yields. Unlike the US, it can afford to raise borrowing costs slowly as inflation is low. In this Viewsroom podcast, Breakingviews columnists explain why monetary tightening as others loosen may give Tokyo an edge.
BoE’s tough talk on rates ignores weak homeowners 1 Nov 2023 The Bank of England is set to keep borrowing costs steady this week but insist they will stay high to curb inflation. That may be hard, given the sick housing market has yet to feel the pain of past hikes. The UK may ease policy sooner than its peers will, and the market expects.
BOJ chooses slow path out of zero-rate limbo 31 Oct 2023 Japan’s central bank again tweaked its policy to permit slightly higher yields on 10-year government bonds as it inches back to positive interest rates. The snail’s pace is understandable. Yet with bond yields rising across the developed world, it remains a loose-money outlier.
ECB’s rosy outlook is a recipe for economic pain 26 Oct 2023 Frankfurt policymakers think the euro zone will grow by 0.7% in 2023 and want to keep rates high to fight inflation. Yet most data point to stagnation or recession. A gloomier perspective would enable the European Central Bank to ease policy and help the bloc’s economy.
Russian war economy is overheating on a powder keg 25 Oct 2023 Soaring military spending is Moscow’s main growth engine, leading to tight labour markets and 6% inflation. The government is strengthening its grip on a country gradually closing to the world and financially beholden to China. If peace returns, a collapse is a real risk.
Singapore policy review shift is sign of times 13 Oct 2023 The central bank will double the frequency of its monetary settings statements from 2024. The unexpected move to quarterly meetings is overdue. Flexibility to respond fast to the risks posed by volatile geopolitics is paramount, more so for Singapore’s open economy.
Bond rout threatens to feed on itself 6 Oct 2023 Strong jobs data pushed 10-year US Treasury yields up again. Alongside nagging inflation and political turmoil, it raises concerns the Fed will keep interest rates higher for a while. Pricier borrowing costs depress asset values, which can lead to a crisis that sparks more fear.
Central banks start game of chicken over rate cuts 21 Sep 2023 Officials in Sweden and Norway hiked borrowing costs, while their British peers didn’t. All hinted policy will stay tight, fearing that stoking expectations of an early start of the loosening cycle may fuel inflation. An economic slowdown may prompt rate-setters to be less tough.
Fed clarity effectively sends a strong buy signal 20 Sep 2023 Benchmark US interest rates probably will hover around 5.5% for a while. A stable cost of capital gives companies, consumers and investors good reason to stop putting off decisions any longer. It should help resolve valuation ambiguities and restart M&A, IPO and housing activity.
How Ukraine’s banks can survive another war 19 Sep 2023 The country’s former central bank Governor Valeria Gontareva explains on The Exchange podcast how the radical steps implemented in 2014 helped Ukrainian lenders withstand the Russian invasion and kept the financial system afloat, and why Ukraine needs to keep reforming.