The Bank for International Settlements has a fascinating section in its latest quarterly report drawing attention to the amount of debt globally, which has soared since the turn of the millennium from under $40trn to hit a whopping $100trn towards the end of 2012. Here’s the chart:
Forward guidance is central banking’s latest fad. Since the nadir of the crisis, all four of the major central banks have adopted their own version of it.
But is this fashion for keeps? That depends on whether the policy works.
Guidance involves saying what you’re going to do, before doing it. This, central banks hope, will temper markets’ uncertainty about what happens to interest rates.
Whether it works or not, then, depends on how much markets trust policy makers to do what they say they’re going to do. If investors think policy makers are lying, or central banks lose credibility by reneging on their pledges, then the guidance could harm reputations for a long time to come.
So does it work? According to a paper, published by the Bank for International Settlements today, it does. Well, sort of.
Yet the research also flags that if forward guidance does succeed, it could end up doing more harm than good. Read more
Welcome to our live coverage of ECB president Mario Draghi monthly press conference. Earlier the ECB kept its rates on hold for the fourth month in the row, despite inflation running at less than half its target. Follow the questions and reaction live here with capital markets editor Ralph Atkins and economics reporter Emily Cadman. The ECB also published its latest economic forecasts, revealing officials’ predictions for inflation in 2016 for the first time.
Mario Draghi has warned that, though unlikely, Europe’s fledgling economic recovery could be derailed by the turmoil in Ukraine.
While the direct financial and trade linkages between the European Union and Ukraine are small, the ECB president told lawmakers in Brussels yesterday that the geopolitical dimensions of the tensions could have a strength that goes beyond mere statistics on capital and current accounts.
One of the most important economic aspects of those geopolitical dimensions is the supply of Russian gas to the EU.
The EU’s reliance on Russia has dwindled over the past decade, but it still matters. The relationship still accounts for 30 per cent of all gas imported into the bloc and when Gazprom cut off Ukraine in 2009, the disruption to energy supplies hit the EU hard. And though the EU is now less reliant on receiving its gas via this route, there’s no way of Russia using the gas button against the Ukraine without it having some impact on the rest of Europe.
The popularity of this tweet by Reuters’ Jamie McGeever highlights the interest this geopolitical dimension has received:
But there are good reasons to bet against Russia turning off the gas tap, regardless of whether or not one believes relations with the EU are the direst since the Cold War. Read more
There could be serious financial turmoil when the Fed eventually raises interest rates, even without a lot of leverage in the financial system, according to this year’s paper at the US Monetary Policy Forum in New York. If the analysis is correct then it is an argument against very easy monetary policy – but the paper is quite limited.
(The USMPF, organised by the Chicago Booth business school, is a once-a-year event where a group of market economists present a paper to a gathering of Fed pooh-bahs. The authors this year are Michael Feroli of JP Morgan, Anil Kashyap of Chicago Booth, Kermit Schoenholtz of NYU Stern and Hyun Song Shin of Princeton.) Read more
Once upon a time, the Bank of England’s Monetary Policy Committee sounded like a group of nine individuals with differing views. One of the most interesting aspects of Mark Carney’s arrival is the monotone now coming from the interest-rate setting committee.
It has been noticed: for example Fathom Consulting put this slide up at its recent monetary policy forum.
In a note last week, JP Morgan also made a rather damming comparison between the BoE’s reticence to acknowledge any discussion over a new form of guidance with the Federal Reserve’s minutes which demonstrated a healthy debate over the options. Allan Monks, the author of the note, concluded:
” In our view, the lack of discussion about the presentation and specifics of this new ‘framework’, or the consideration of any alternatives, does not suggest the committee as a whole is strongly invested in it. While Governor Carney may suggest policy-setting has undergone another innovation, the rest of the MPC has merely acquiesced and views the changes through a different lens.”
January’s eurozone inflation number, out earlier on Monday, showed price pressures in the currency bloc are not quite as subdued as first feared, registering 0.8 per cent – a touch higher than Eurostat’s initial estimate of 0.7 per cent.
It’s hardly a game changer: inflation is still less than half the 2 per cent target. But the slightly better figure will reduce pressure on the European Central Bank a little after it faced renewed calls to ease policy following the release of the flash estimate.
However, the detail of this morning’s release suggest disinflationary pressures might be even worse than feared. This excellent chart from Marchel Alexandrovich of Jefferies International shows why: Read more
The question seems absurd. John Rentoul of the Sunday Independent would be tempted to add it immediately to his list of journalistic questions to which the answer is “no”. I think the answer is obviously “no”.
But the Treasury and the Information Commissioner believe anyone revealing details of the Bank of England’s forecasts is doing something that is:
“likely to have a destabilising effect on the financial markets and thus have a prejudicial effect on the economic interests of all or part of the UK”.
Hence, in the eyes of government, Mr Carney, who revealed details of the BoE forecasts on Wednesday, is something of a traitor. At least that was the view of the Treasury last year. Read more
With the UK unemployment rate falling faster than expected towards his 7.0 per cent threshold as the economic recovery picks up steam, Bank of England Governor Mark Carney is under pressure from the markets to update his forward guidance on interest rates when he presents his quarterly inflation review.
The Monetary Policy Committee will also reveal its quarterly forecasts for growth and inflation
By Sarah O’Connor and John Aglionby
Welcome to our live coverage of ECB president Mario Draghi monthly press conference. Earlier, to the surprise of some, the ECB kept its rates on hold. Follow the questions and reaction live here with capital markets editor Ralph Atkins and Emily Cadman