Negative rates are just an incremental positive 5 Sep 2014 Lenders to Germany are now promised a negative nominal return for three years, and France can borrow below zero for two. The negative rates break a historic taboo, but they may not work as the ECB hopes. High debts, not high rates, are the biggest drag on the euro zone.
South Korea repeats Sweden’s monetary mistake 5 Sep 2014 Finance Minister Choi Kyung-hwan warns the country is entering “an early stage of deflation”. That’s a swipe at the Bank of Korea, which has kept borrowing costs unsuitably high. The central bank’s strategy, similar to the Swedish Riksbank’s now-abandoned approach, has backfired.
Draghi plays final hand in euro poker game 4 Sep 2014 The ECB is going all-in. It has cut rates to near-zero and will buy assets on a large scale – on top of the ultra-cheap liquidity it had already announced. The moves could help the euro zone economy, but the ECB has now used all its powder. The rest is up to governments.
Markets overestimate Draghi’s economic powers 1 Sep 2014 Investors show a touching faith in the ECB president’s ability to boost near-zero inflation. The trust may be misplaced. Mario Draghi’s success in defusing the euro zone crisis relied on his sway over markets. He has less influence over the euro zone economy and governments.
ECB keeps hoping in ABS field of dreams 29 Aug 2014 Mario Draghi expects investors to come if he builds a market that he admits barely exists. Purchases of asset-backed securities might help growth and boost inflation. Yet the obstacles are substantial, and regulation is a thorn. Government aid would help.
Falling euro squeezes Swiss, Swedish central banks 29 Aug 2014 A lower currency helps the ECB fight disinflation. It’s a curse for Swiss and Swedish central banks, which are running out of traditional ways to stop an unwanted appreciation in their currencies. They may end up having to follow the euro zone into less charted policy waters.
Edward Hadas: Central bankers’ reward for failure 28 Aug 2014 The supervisors who gathered last weekend in Wyoming were seen as saviours, or as possible destroyers, of a fragile financial system. That elevated status is an undeserved prize. As Keynes noted, economists are more like dentists. But central bankers lack the dentist’s toolkit.
Draghi leaves Germany in austerity team of one 26 Aug 2014 The ECB president is now calling for looser fiscal policies, with hints that he will follow up with monetary relief. The change of heart is a rational response to euro zone stagnation and persistent low inflation. All that’s needed now is to bring Angela Merkel along.
ECB deserves to lose market’s inflation confidence 22 Aug 2014 Euro zone inflation is moribund. Investors are increasingly doubting Mario Draghi’s ability to boost it, according to normally quiescent market signals. That’s quite right, given how ineffectively monetary policymakers are addressing the problem.
Central banks should forget about inflation 21 Aug 2014 When they talk in Jackson Hole, central bankers will undoubtedly fret about prices. It’s a waste of time. Inflation and deflation rates are too low and stable to be a threat. The monetary authorities have more important worries: debt, reserves and managing rate rises.
Edward Hadas: Time to retire unemployment 20 Aug 2014 The world’s central bankers are discussing “labour market dynamics” at this week’s annual Jackson Hole conference. A good place to start is with the most widely-used monitor, the unemployment rate. It is well past its sell-by date. A “bad job index” would serve a better purpose.
UK rates may not rise till 2016 – or later 14 Aug 2014 This year or early next for a UK rate rise? That has been the market’s question. The data demands much more caution. The Bank of England expects inflation to be on target until 2017, and its growth forecasts look optimistic as Europe struggles. Expect flat rates for a long time.
BoE on slack: we’re even more confused than before 13 Aug 2014 The central bank has conceded the economy still contains slack, despite plummeting unemployment. It is easy enough to tweak wage growth assumptions that already looked way too bullish. Keeping investors interested in following BoE guidance will be rather harder.
Euro-pessimists have only themselves to fear 13 Aug 2014 Gloom about the single currency is justified. Regional economic activity is weak, inflation is low, and the central bank is not-so-covertly promoting a lower exchange rate. In fact, almost the only thing that may support the euro in coming weeks is the ubiquity of pessimism.
Wages, not slack, will set U.S. and UK rate hikes 12 Aug 2014 The Fed and BoE say they’ll use the gap between actual and potential output to decide when to raise rates. Yet measuring this is a mug’s game. Investors struggling to estimate slack are better off watching wage growth. Right now, that means rates should stay where they are.
Yuan’s rise driven more by fear than fundamentals 7 Aug 2014 After months of weakening, the Chinese currency has reversed course. Policymakers are also rethinking their timetable for making it basically freely tradable. Even if intentions are good, fear of damaging capital inflows and outflows makes it hard for the central bank to let go.
Dollar set to take pound’s strong currency title 6 Aug 2014 Sterling became the FX market strongman during the past year as investors started to believe the UK would be the first big economy to raise rates. They may be right. Even so, shifting market expectations of when U.S. rates will be hiked now look set to boost the dollar.
Workers get less, central banks get a dilemma 31 Jul 2014 The share of rich-nation GDP going to labour has fallen, and depressed the “natural” interest rate that maximizes employment at steady inflation. But if central banks peg rates at the new level, cheap money foments financial instability. It’s a problem only governments can solve.
BoE gives bosses new reasons to avoid UK banks 30 Jul 2014 UK bank regulators are mulling fresh ways to defer executive pay and clarify lines of accountability. The ideas mostly make sense, apart from clawback rules which may backfire. Yet they could worsen the already existing talent shortage at the top of British banks.
Japan’s bond-hugging banks are pinning Abe down 22 Jul 2014 Lenders’ $3 trln holdings of public debt are not falling fast enough. That could be problematic for the prime minister. Once monetary stimulus dries up, banks may rattle the financial system by turning panic sellers. Bank of Japan minutes show Shinzo Abe’s team knows the risks.