Daily Archives: January 8, 2010

Simone Baribeau

Today’s report showing the US economy lost 85,000 jobs dashed hopes that the economy had finally stopped sloughing of jobs. Or did it? Very likely, but we won’t know for sure for a few months. After all, according to the latest release we gained jobs in November, after we had thought for a month that payrolls were still falling. Granted, it was a smaller original decline, but the BLS’s revisions of unemployment over the past few months have been striking. Read more

Krishna Guha

A confession: I missed the Fed’s regulatory guidance to banks on interest rate risk yesterday. Some have misread this as a hint that rate increases are coming soon. I think that is the wrong take.

Bernanke and Kohn have talked about using regulatory tools rather than interest rates in the first instance to combat future bubbles and avoid the build-up of financial excesses. The latest guidance looks to me to be a very modest example of this -not a signal on rates. Read more

Krishna Guha

I wrote a piece in today’s paper flagging up the fact that the version of the Taylor rule cited by Bernanke in his AEA speech has recommended a positive interest rate since mid-2009. This raises the question of whether the Fed is still pinned to the zero bound (ie it would be running negative rates if it could) or whether a relatively modest upside forecast revision could lead to early rate hikes.

The calculation used by Bernanke – based on Fed forecasts over four quarters using PCE to measure inflation with equal coefficients for both sides of the dual mandate – suggests the Fed is not pinned to the zero bound any more and that the ideal interest rate is a fraction above zero. Which implies that a mid-sized forecast upgrade could start discussion of rate hikes.

However, my sense is that when it comes to policy Fed policymakers will a Read more

By Henny Sender

The Bank for International Settlements, the Basel-based body that is sometimes known as the “central bankers’ bank” because it plays a vital global co-ordinating role, is convening a group of senior financiers such as Stephen Green, HSBC chairman; Larry Fink, Blackrock founder; and executives from JPMorgan and Morgan StanleyRead more

Simone Baribeau

Consumer credit fell at its fastest rate since 1980 in November, the Federal Reserve reported today. The 8.5 per cent decrease was led by a staggering 18.5 per cent decrease in revolving credit.

And the end is not near, says Joshua Shapiro, Chief US Economist at MFR. Read more

Krishna Guha

Today’s jobs report will be mildly disappointing for the Fed but not all that surprising. Policymakers were I believe expecting a negative number. The report is consistent with the idea that the labour market is turning – the three month moving average went down – but the improvement is sluggish and there may be several choppy months ahead.

It does however take some upside risk – of accelerating momentum leading to forecast upgrades – off the table. Read more

Simone Baribeau

All important US nonfarms payrolls for December are out today. December employment fell by 85,000, against expectations of no jobs lost or gained, and the unemployment rate stayed constant at 10.0 per cent.

The numbers are disappointing. In the household survey, the number of people not in the labour force, but who currently want a job rose by 263,000, which helped hold the unemployment rate down. And the percent of people who are unemployed, discouraged, or working part time because they can’t find full time work rose by 0.1 percentage points to 17.3 per cent in December, though it remains below October’s level.

But in a small bright spot November’s job loss of 11,000 was revised to a jobs gain of 4,000. A minor revision, especially as the economy lost an additional 16,000 jobs than previously estimated, bringing jobs lost in that month to -127,000 in October, but still, a month of gains after 22 months of losses.

So who were December’s winners in an arguably downbeat report? Read more

A report requested by the G20 recommends hedge funds should be subject to minimum risk measurement standards and reporting requirements. Minimum initial and outgoing capital requirements should be imposed on systemically relevant hedge funds.

The Joint Forum – an international panel from the banking, insurance and securities industries – has released its report snappily named the “Review of the Differentiated Nature and Scope of Financial Regulation”. It is 132 pages of assessment and recommendation on the regulation of the financial sector. The Forum found surprising and growing levels of convergence in regulation. But it points out areas of risk and makes 17 recommendations, summarised below. Read more

Something is afoot in global currency negotiations. President Sarkozy yesterday attacked global “currency disorder” and pledged to make currencies a central theme of France’s presidency of the Group of 20 in 2011.

I know many people will roll their eyes and say, so what’s new. This reaction is totally justified by the standard G7 ritual, loved by all the meeting’s followers.

Before a meeting, the French finance minister or president will make a stink about currencies and overvaluation of the euro, saying that this will be a key topic on the agenda on the next group of seven meeting. Then the meeting comes along. Currencies are not on the agenda. They are not talked about. The G7 then issues the same empty statement about currencies. Read more

An international committee designed to deal with issues common to the banking, securities and insurance sectors has appointed a new chairman. Tony D’Aloisio succeeds John Dugan for a two-year term, effective January 1, 2010. Read more

The Philippine central bank is signalling a rise in the rates it charges lenders to borrow from the bank.

Bangko Sentral governor Amando Tetangco said he might raise the re-discounting interest rate, used to regulate liquidity by increasing or decreasing the amount of money lent to banks. Currently the rate appears to be at 3.5 per cent. Read more

I am struck by the similarity of the disagreements on both sides of the Atlantic as the active process of quantitative easing (or credit easing if you live in the US) seems to be coming near to an end.

Krishna wrote in today’s FT about arguments within the Fed over whether it is the quantity of money created to purchase mortgage backed securities from Fannie Mae and Freddie Mac that matters for boosting the economy and the US housing market or whether it is the continued flow of those purchases. On our UK pages, Dan Pimlott teased out the same argument over the Bank of England’s purchases of government bonds.

This is an incredibly important issue, theoretically and practically, and though some people have very strong views, no one really knows how or whether unorthodox monetary policy works.

In very simplistic terms, the stock of money advocates base their thinking around concepts derived from the quantity theory of money,


where M is the the stock of money, V is the velocity of circulation or speed money moves around the economy, P is the price level and T is the volume of transactions. This equation is true and both sides equal nominal GDP.

 Read more

Ralph Atkins

A hawkish speech by Tom Hoenig, president of the Federal Reserve Bank of Kansas City, prompted my colleague Krishna Guha to suggest - in jest, I presume – that perhaps he would fit in better at the ECB than Ben Bernanke’s Fed. I am not so sure. Nobody at the ECB has dared to speak so openly about the dangers of leaving interest rates low for too long – let alone use mention the “h-word” (hyperinflation).

Of course, Mr Hoenig’s worries would be echoed behind closed doors at the ECB. Quite a few in Frankfurt would agree with his assertion that: “experience has shown that, despite good intentions, maintaining excessively low interest rates for a lengthy period runs the risk of creating new kinds of asset mis-allocations, more volatile and higher longer-run inflation, and more unemployment – not today, perhaps, but in the medium- and longer- run.” But public utterances in Frankfurt tend to be more cryptic, with potential problems referred to only indirectly. Read more

From Reuters:- Moody’s Investors Service has just upgraded Turkey’s government bond rating to Ba2 from Ba3, reflecting the rating agency’s growing confidence in the government’s financial shock-absorption capacity. The outlook was changed to stable from positive. Fitch moved late last year to put Turkey on BB+.

Timothy Ash, an analyst at Royal Bank of Scotland, said: “It’s a bit disappointing that Moody’s only moved one notch, as this still leaves Moody’s rating of Turkey one notch behind Egypt, which I have long failed to understand… answers on a postcard as to why Turkey should be rated behind Egypt. Obviously Moody’s was ‘inspired’ by the hugely successful eurobond issue earlier this week ($2bn placed, and $7bn in orders). Clearly, investors are voting with their feet, irrespective of the views of the ratings agencies.”

South Korea’s central bank today left its policy interest rate unchanged at a record low of 2 per cent to “help sustain the trend of recovery in economic activity”.

The bank said that consumer price inflation was accelerating, driven by fuel prices and bad weather, and that both domestic and export markets were improving. However, there still “remains uncertainty as to the economic growth path due to the risk of delay in a full-fledged recovery of the major advanced economies”. Read more

The Danish central bank agreed yesterday that, effective from today, various interest rates would be reduced by 0.05 percentage points to combat the strengthening of the Danish currency, saying: “The interest rate reduction is a consequence of purchases of foreign exchange in the market.”

The rates on certificates of deposit, the lending rate and the current account rate have all been trimmed. Key rates now stand as follows: