ECB’s targeted loans look deliberately scattergun 3 Jul 2014 The European Central Bank has explained how banks must lend to get super-cheap funding. The terms are loose, and there’s little to ensure the cash will reach credit-starved SMEs. But that merely makes the loans more attractive - and thus a more powerful weapon against deflation.
Sweden is a lab rat for fighting deflation 3 Jul 2014 The Nordic nation has slashed interest rates more than expected. Sweden is a small, open economy with an independent central bank. So this will be an excellent post-crisis test case of the power of monetary policy to fight deflation when asset prices are rising. It won’t be easy.
UK’s hawkish shift is dangerous 30 Jun 2014 There are good reasons for the Bank of England to raise rates. But an early move this year could be costly. Sterling would rise further. Exports, already struggling, would suffer. Rebalancing dreams would die. The BoE must hope the housing market cools, and the Fed quickens.
Diagnosis of economic malaise lacks credible cure 30 Jun 2014 Global growth is feeble and financial markets are piling up risks, says the Bank for International Settlements. Yet its proposed remedies of tighter monetary policy and structural reform are unconvincing. Like everyone else, central banks are still seeking the right medicine.
Carney takes narrow view of financial stability 26 Jun 2014 The Bank of England governor had a chance to address galloping UK house prices via macroprudential tools, curbs to UK mortgage guarantee schemes, and dire warnings. All he offered was underwhelming lending rules. That is no way to protect banks in the long run.
BoE boss gives market salutary lesson 25 Jun 2014 Traders find Mark Carney unreliable. That’s fair - he has changed his message more than once. But he has acquired the virtue of responding to doubtful data with policy uncertainty. That used to be standard practice for central banks. It’s time markets got used to it again.
Central bank stock buys give investors new worries 19 Jun 2014 Official lenders flush with foreign reserves are diversifying into equities, a study said this week. Even a global total of, say, $500 bln would be just a fraction of world market cap of $64 trln. But it’s enough to affect prices – and comes from investors with atypical goals.
Can sterling hit $2? Only with a perfect storm 18 Jun 2014 Having touched $1.70, the pound is on the brink of escaping its five-year range. A return to $2 looks like a fantasy right now. But a more hawkish BoE, a dovish Fed, a Scottish “No” to independence, and a narrowing of the UK’s twin deficits would do a lot to close the reality gap.
Triple financial mystery remains unsolved 17 Jun 2014 For the last three decades inflation and interest rates have generally fallen in rich countries, while debt has risen. Economists have many explanations, but are continually surprised by the persistence of the trends. The ignorance is dangerous for policymakers and investors.
India in depth: Global slack will test Modi’s zeal 17 Jun 2014 The new prime minister wants to end the country’s investment drought. But world growth is too weak to support an ambitious revival, and a binge funded by still-cheap money could be short-lived. The better bet is to act as a patient reformer, and let the rewards follow.
ECB could unmask incomplete Landesbanken cleanup 16 Jun 2014 The ECB’s stress tests may show that Germany restructured its big regional banks only half-heartedly. Suffering from political interference and short of a viable business model, many are exposed to risky assets, in particular in shipping. Further consolidation is inevitable.
Review: "House of Debt" diagnosis beats remedies 13 Jun 2014 Atif Mian and Amir Sufi make a compelling case that excess consumer debt caused the U.S. Great Recession’s severity, but their mortgage bailout proposal would make matters worse. Their shared value mortgages might help, but old-fashioned tight money is a simpler and better way.
Carney uses markets as cover for volte-face 13 Jun 2014 It’s a bit rich for the BoE chief to say rates may rise sooner than markets expect. Until now, he has guided investors the other way. The U-turn shows the danger of pseudo-transparency. Still, there’s welcome honesty that the blunt instrument of a rate hike may be needed.
UK wage puzzle suits BoE doves’ agenda 11 Jun 2014 No one fully understands why falling UK joblessness isn’t leading to faster pay increases. Open EU borders and delayed retirements might be an explanation. Either way, glacial wage inflation gives the Bank of England an excuse to keep rates low for longer than the market expects.
ECB’s new tools reach limits of monetary policy 11 Jun 2014 The central bank’s 400 billion euro liquidity injection may bring down funding costs and spur new lending. But banks are wary of possible losses, and borrowers gloomy. Don’t blame the ECB: it’s up to governments to pick up the baton – with fiscal loosening, coupled with reforms.
Only the Fed can sink the euro 6 Jun 2014 The ECB tried, but its new policies weren’t strong enough to push down the currency. Without Fed-style QE, the euro could spike higher. But the United States is gaining strength. A tighter Fed and rising dollar should eventually weaken the euro - and probably many other assets.
Draghi’s smart bombs are powerful but late 5 Jun 2014 The ECB cut its deposit rate below zero, and offered ultra-cheap loans to entice banks to lend. The weapons are powerful, and backed up by the hazy promise of private-asset purchases. Draghi is doing the best he can to fight the slump with limited tools. Better late than never.
Europe’s new market finance zeal slides over risks 5 Jun 2014 With banks not keen to lend, European officials want markets to provide more credit. The ECB may even try to help by buying asset-backed securities. The goal is worthy, but caution is warranted. Markets come with their own risks, most notably vanishing liquidity in a crisis.
Central banks abet the complacency they fret about 4 Jun 2014 Monetary policymakers worry that today’s torpid markets carry the seeds of tomorrow’s torrid moves. They’re right to worry, but the problem is of their own making. Cheap money is making investors complacent, so they underestimate the risk of big adverse price swings.
Rob Cox: Fed fundamentalists deserve fresh listen 3 Jun 2014 After years of expanding policy and remit, the U.S. central bank risks biting off more than it can chew. Hawkish economists persuasively argue this creates a risk of failure, which could undermine Fed independence. More important, the Fed has to stop giving cover to a lazy Congress.