The ECB wants to better understand the value of bank assets it is holding as collateral against loans made during the crisis. A consultation to achieve this may be approved today by the bank’s governing council. Read more
The separation principle is back – this time on the US side of the Atlantic. With today’s statement the Fed is basically embracing an ECB-style distinction between liquidity policy and monetary policy.
At the onset of the crisis some Fed officials thought there was something to the separation principle idea. Others thought it was complete nonsense.
As the crisis intensified Fed officials quickly reached a consensus that it made no sense to distinguish between monetary and liquidity policy in crisis conditions when both directly and substantially influence private borrowing rates and overall financial conditions. They thought the ECB was mistaken Read more
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. Read more
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
As expected, the Fed funds rate is unchanged at 0.0-0.25% and the US central bank keeps its extended period language.
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? Read more
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. Read more
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.