A few quick first thoughts…
1) Fed staff getting more bullish on growth but still sees core and headline inflation declining over the next two years.
2) Policymakers think the outlook has “not changed appreciably” since the November meeting.
3) Doves (plural) still worry about sustainability of growth and want to keep open the option of expanding asset purchases.
4) Policymakers disagree as to how big an impact on mortgage rates the ending of MBS purchases will have.
5) They are not worried about current asset prices or the effect of the dollar decline to date on inflation but will keep a watchful eye on both going forward.
Other than a brief year-end dip, the Fed funds rate has been extremely close to the midpoint of its 0 to 0.25 per cent range after months of on and off flirting with the high end of the range.
What happened? Read more
The Kuwaiti parliament has approved a bill that is extremely unpopular with both the government and the central bank. If passed into law, the bill could force the government to buy all $23.3bn of consumer loans in the country, write off the interest and reschedule the payments.
The government plans to ask the emir, Sheikh Sabah al-Jaber al-Sabah, to reject the law, and the central bank has said the bill includes legal and technical violations and cannot be applied. The government has bailed out indebted nationals twice before, once after the 1982 stock market crash, and again after the 1991 Iraqi occupation. Read more
Cristina Fernandez has asked for the resignation of central bank president Martin Redrado, following tension over the release of foreign currency reserves. Mr Redrado had resisted releasing $6.5bn in foreign currency reserves that Ms Fernandez had ordered for a special fund to meet the country’s rising debt obligations. A replacement has already been named: former central bank president Mario Blejer will take up the role.
The Harvard-educated Mr Redrado, who almost tripled Argentina’s reserve levels since taking office in September 2004, had supported government policy until now. Whether the use of reserves is sound economic policy remains to be seen: one economist said “it might be pushing things a bit too far.”
The Chinese central bank has said that mainly focusing on inflation is not enough. “China’s monetary policies are aimed at achieving multiple goals, rather than just a solitary effort to control inflation,” said governor Zhou Xiaochuan. Other goals include ensuring economic growth, keeping a relatively high employment rate, and securing the international balance of payments, he said.
The People’s Bank of China says it will target “moderate” loan growth this year, in contrast to the extremely sharp expansion of credit last year. Loan issuance to industries facing overcapacity must be strictly controlled to avoid credit risks, governor Zhou said. Read more
Tomorrow’s meeting of the Monetary Policy Committee almost certain to produce no change in monetary policy, no statement and little of interest. The Bank of England’s interest-rate setting committee made it clear in November it would continue purchasing another £25bn assets under the quantitative easing programme until the end of January. The markets expect the flow of QE to end at that point.
While the February meeting will be interesting because the MPC has to decide whether to continue purchasing gilts – the Bank has bought £190bn so far – if it chooses to stick at the total of £200bn, we are likely to see little action until after the election. Read more
In the British battle of the year so far, Balls vs. Balls, first blood has to go to Ed, the elder.
Ed Balls, children’s secretary and Gordon Brown’s Mini-Me, has been embarrassed in recent days by the public criticism of the government’s deficit reduction plans by Pimco, the global bond fund. The trouble is that Andrew Balls, Ed’s brother, is head of Pimco’s European investment team.
Yesterday, Scott Mather, head of PIMCO’s global portfolio management, said there was an 80 per cent chance of a credit rating downgrade for the UK if the government left its plan for the public finances unchanged as it did in the pre-Budget report. Read more
There will be no bail-out of Greece by other European Union countries, a top European Central Bank official has said. “The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece,” Jürgen Stark, an executive board member, told Italian newspaper Il Sole 24 Ore.
His tough words have caught the eye of nervous financial markets. But they should not have been too much of a surprise. Mr Stark is a hardline conservative, even by ECB standards. Read more
Traders re-establishing short positions in the dollar may be causing the appreciation of the shekel, which officially closed at 3.736 yesterday. The Bank of Israel – which now only intervenes in unusual circumstances – bought between $200m and $300m at around 1200 GMT Tuesday, said dealers.
The currency closed 2009 at 3.775 to the dollar, with hardly any movement during December, a traditionally quiet trading month as traders seek to hold their positions. But the shekel has appreciated 1 per cent against the dollar over the first two sessions of 2010 and has now advanced for seven straight sessions. “Overseas banks have opened new positions and those positions are short dollar-shekel,” said a dealer at Bank Leumi. Read more
The board of Nigeria’s central bank voted unanimously on Tuesday to keep the monetary policy rate at 6 per cent and the key lending rate at 8 per cent, though it reduced the borrowing rate from 4 to 2 per cent. Inflation poses a “serious threat in the months ahead,” said governor Lamido Sanusi. The all-item CPI rose to 12.4 per cent year-on-year in November from 11.6 and 10.4 per cent in the two previous months.
The board also chose to extend the guarantee on bank transfers to December 31, 2010. The Nigerian banking industry is still in serious trouble. Read more
Indonesia’s central bank today decided to hold the Bank Indonesia (BI) rate at 6.5 per cent, saying the level was consistent with the 2010 inflation target of 5% ± 1%. Inflation in 2009 was recorded at 2.78 per cent, well below the target of 4.5% ± 1%. The Board sees little likelihood of renewed inflationary pressure in the first half of 2010.
The monetary policy operational target is reflected in movement in the interbank overnight rate. It is expected that bank deposit rates will track the movement in interbank rates, with bank lending rates following suit.