Monetary policy

From now on, GDP figures in the UK will be watched with more than usual interest, because Britain is embarking upon the most significant fiscal tightening among the G7 nations. Can the economy withstand it?

Today’s GDP statistics for the third quarter, which show that the economy is growing at an annualised rate of 3.2 per cent, were much stronger than expected, and suggest that the economy is in better shape than many economists had predicted as the government is launching its fiscal retrenchment. However, the composition of the data is somewhat less encouraging than the picture painted by the headline figures. Read more

William Dudley, the President of the New York Fed, is an intellectual heavyweight with whom I was fortunate enough to work for a couple of decades. Long experience has taught me not to ignore his views on the economy. He made an important speech last Friday,  spelling out the dovish view on monetary policy which is currently held by the most senior members of the FOMC, probably including Ben Bernanke.

Although the speech was careful to go no further than the statement which followed the last FOMC meeting in September, it explained in considerable detail why the Fed now believes that inflation is too low, and why he at least also believes that a further round of QE is the right response to the situation. Read more

There are two massive fixed exchange rate blocks operating in the world economy today, and both of them are facing severe strains and conflicts.  Read more

Although the US economy is no longer quite as dominant as it once was in the global economy, there is no sign that the Federal Reserve is losing its primacy among the major central banks – at least, not as far as the financial markets are concerned.  Read more

Mervyn King’s speech to the TUC this week reiterated his strong support for the fiscal retrenchment plan announced by the coalition government in the UK. Some people have said that it is not the role of the central bank Governor to comment on fiscal policy, which they argue should be confined to the political arena. However, the Fed Chairman and the President of the ECB frequently comment on government debt and budget deficits, so it is hard to see why Mr King should be criticised for expressing his opinion. A much more important question is what his speech tells us about the likely course of fiscal policy and its relationship with monetary policy. Read more

The shift in market prices since the Fed meeting on Tuesday has been very minor in the great scheme of things, but it has obviously got some people worried that it is the start of a much bigger move in the coming weeks.  Read more