Daily Archives: December 16, 2009

Krishna Guha

For investors trying to estimate when the Fed will raise interest rates, today’s statement was a non-event. The Fed upgraded its assessment of economic conditions, but did not radically revise its view of the trajectory of growth going forward and left its discussion of inflation unchanged.

It underscored its intention to complete its exit from unconventional liquidity policy soon – but drew a bright ECB-style distinction between liquidity policy and monetary policy. It left for 2010 the question of whether the unusually narrow discount rate spread falls into the first category or the second.

Not much to get excited about.

But for analysts trying to understand the arc of Fed policy from crisis to a new normal it was a bit more interesting. 

Simone Baribeau

Finally, some good news for sovereign debt. As Greece and Mexico suffer credit ratings downgrades, Moody’s upgraded Peru’s debt to investment grade. Moody’s upgraded Peru’s foreign-currency government bond rating to Baa3 from Ba1, praising the country for its increased resilience to shocks and reduced credit risks. 

Krishna Guha

The Federal Reserve on Wednesday upgraded its assessment of the economy and highlighted its intention to shut down most of its crisis-fighting liquidity facilities in early 2010. But it gave no hint of inflation concerns that could lead to it raising interest rates.

The Fed also said that it was sticking to its existing plan to taper off and complete its scheduled $1,425bn purchases of securities issued by Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, by March 31. Keep reading

Simone Baribeau

As expected, the Fed funds rate is unchanged at 0.0-0.25% and the US central bank keeps its extended period language.

Standard and Poors has just cut Greece’s credit rating from A- to BBB+, having placed the country on credit watch on December 7. The new rating matches that of Fitch, which cut on December 8. The rating is two notches above junk grade status, and also two notches above the (temporarily reduced) ECB collateral requirement of BBB-. Greece is now one notch above Mexico, which was downgraded to BBB by Moody’s yesterday.

Ralph Atkins

Yesterday I wondered if it would end with a whimper. In fact, the European Central Bank’s last offer of unlimited one-year liquidity managed to produce a big number, after all. Almost €100bn was pumped into the financial system. The number of banks bidding was down sharply – from 1,121 in June to 224 this time. But the average amount bid was the highest yet.

So what does it all mean? 

Chris Giles

Sitting in the Treasury Select Committee listening to Alistair Darling, chancellor, give evidence on Britain’s fiscal position, I am struck by a contradiction and one hopeful sign in Britain’s fiscal consolidation plans.

The current contradiction is that the chancellor insists he knows the total public spending figures because he knows borrowing will be halved, but he cannot reveal anything else because it is too uncertain. If uncertainty rules and the details of spending projections are completely uncertain, there can be no credibility in the government’s commitment to protect spending on schools, hospitals and police. He can’t be sure he has the cash. 

The eurozone’s annual price change was positive in November for the first time in seven months. The year-on-year inflation figure of 0.5 per cent was in line with expectations, though slightly lower than analysts’ predictions of 0.6 per cent. More soon.

Chris Giles

Official figures show Britain’s economy has contracted by almost 6 per cent this recession; the US economy by only 3.2 per cent. Yet the employment declines have been much smaller in the UK: OECD figures suggest British employment has fallen only 2 per cent , compared with 4.5 per cent in the US. As the chart from the Office for National Statistics shows, UK employment stopped falling around May this year, some seven months ago.

We have blogged frequently on these enormous transatlantic labour market differences. Ralph has explained the European Central Bank’s concern that short-time working schemes in continental Europe explains much of the difference, but that argument does not apply to the UK, where there have been no such schemes.