All inflation seems temporary to the Bernanke Fed 13 Mar 2012 The central bank said the impact of higher gas prices would be fleeting, justifying its pledge to keep rates low through 2014. But price rises are already above the Fed’s soft target. The intellectual contortions needed to maintain policy for 30 more months will get interesting.
Review: Bank of England exposed, but not decoded 9 Mar 2012 The central bank is as powerful as at any time in its 318-year history, yet remains stubbornly opaque. Dan Conaghan’s “The Bank” attempts to chart its recent history. Though far from definitive, the book is the best available guide to an increasingly important institution.
Hugo Dixon: LTRO was a necessary evil 5 Mar 2012 The ECB’s decision to pump 1 trln euros into European banks could reduce the pressure on governments to reform, while allowing undeserving banks to make bumper profits. But the bailout prevented an even worse outcome. The priority now is to limit the bad side-effects.
Weidmann’s ECB agitation more dangerous than Weber 1 Mar 2012 The Bundesbank head has warned the ECB over the dangers of loose liquidity. The move echoes the battle over bond-buying that led to the resignation of his predecessor, Axel Weber. Weidmann’s worries are more controversial in that they appear to stem from the risks of a euro exit.
Markets might yawn at second ECB cheap-money fix 28 Feb 2012 The ECB’s first three-year liquidity facility in December sparked a rally across markets. The second may not have the same impact. Those hoping for a massive injection of cheap money may be disappointed. And expectations of further ECB long-dated funds look premature, at least for now.
ECB Greek loss dodge heralds end of bond buying 17 Feb 2012 The ECB will avoid losses on Greek bonds through a legal manoeuvre. Such special treatment will not please the bondholders asked to take losses on their Greek debt. That’s bad for other countries whose debt the ECB owns. And it will make bond buying difficult in the future.
Bank of Japan fights against irrelevance 14 Feb 2012 An extra 10 trillion yen of quantitative easing won’t change much and the new 1 pct inflation target is little more than wishful thinking. In a country with a shrinking population and a government deficit of 9 pct of GDP, a responsible central bank can be only a secondary player.
ECB’s adrenaline fix has dark side for banks 13 Feb 2012 Cheap three-year loans have prevented bank failures and lifted markets. But the broader economic benefits are uncertain, stopping the medication will be hard and the longer the ECB keeps its dominant role in the system, the less banks look like private sector institutions.
Draghi shows vigour with Ackermann slapdown 10 Feb 2012 The ECB chief has lampooned “statements of virility” from bankers – like the Deutsche Bank head – who reject cheap liquidity. Draghi is right that lenders’ health rests on the strength of their host nation. It’s also a warning to others tempted to question the central bank.
ECB’s new funding tool reveals bank pain hierarchy 9 Feb 2012 The central bank is loosening its collateral rules for banks, but just seven euro zone countries have been given the green light to participate. That allows the ECB to aim its three-year loans where they’re needed most. But it also shows which banking systems are most stressed.
Japan’s bluster can’t sink the irrepressible yen 2 Feb 2012 Officials want the central bank to print yen to stop its climb to help exporters. They shouldn’t hold their breath. The Bank of Japan may oblige for long enough to cool the currency’s rise, but an ageing population and massive debts mean fighting for a weaker yen is a losing battle.
Fed doubles risk of being whipsawed by market 25 Jan 2012 By extending its zero-rate commitment from about 18 months to three years the U.S. central bank has doubled the risk that markets may surprise it. Job creation, Bernanke’s departure or inflation could force a damaging reversal - or lead the Fed to drag its feet to avoid one.
Alluring subprime debt can still poison investors 19 Jan 2012 Credit Suisse, Goldman Sachs and other banks reckon there’s life yet in the mortgage market’s toxic waste. Double-digit yields, after all, are hard to ignore. But subprime sludge still has the ability to slip buyers up. Investors should tread carefully.
Sale of Lehman dregs shows risks of ECB largesse 19 Jan 2012 Three years after Lehman’s collapse, the Bundesbank is selling 2 bln euros of risky debt it was stuck with when the U.S. bank failed. The euro zone’s central banks are now lending far more to banks, and loosening lending terms. The sale is a timely reminder of the risks involved.
Fed profit shows it’s in the market but not of it 11 Jan 2012 The U.S. central bank is handing the Treasury $77 bln of its 2011 profit, a hair under the 2010 record. That’s three-quarters of what all the nation’s commercial banks collectively make in a year. It’s a reminder that the Fed plays big these days - but by different rules.
ECB will find it hard to avoid pain on Greek debt 10 Jan 2012 The central bank’s refusal to participate in the Greek debt restructuring becomes harder to sustain as Athens threatens to become more coercive. And any attempt to spare the ECB losses will make it look as if it enjoys implicit seniority, pushing sovereign yields even higher.
Hungary’s choice: disaster or surrender 10 Jan 2012 Budapest needs financial aid from the IMF and EU after its populist policies scared away investors. A swift deal would calm fears of contagion to Austria and central Europe. But international lenders can only agree if the government repeals its most outrageous reforms.
Hildebrand shows stark exposure of central bankers 9 Jan 2012 The Swiss National Bank chief has been forced out after his wife engaged in ill-advised currency trades. Hildebrand’s policies made him a political target. It’s a reminder to central bankers around the world that, to retain their independence, they have to be whiter than white.
Currency deals put Swiss central bank on the spot 5 Jan 2012 SNB chairman Philipp Hildebrand’s wife swapped 400,000 Swiss francs for dollars weeks before the currency was pegged to the euro at a lower rate. The bank doesn’t see anything wrong with this. But the affair leaves a bad taste, and will embolden the SNB’s critics.
Federal Reserve sets itself up for a messy exit 3 Jan 2012 The U.S. central bank’s decision to forecast overnight interest rates has little downside in the short term. An implicit target should keep rates low and dependable. But it will tie the Fed’s hands tightly, something it could regret when the economy forces a change in course.