The Bank of England does it. The Bank of Japan does it. So why can’t the Fed do it?
Ben Bernanke spent the afternoon arguing before a House committee that it would be a serious mistake to take bank supervisory authority away from the central bank. It was an argument he, and several other FOMC members, had made before. But for the first time, a question from a Congressman forced him to publicly justify his position from an international perspective.
Stanley Fischer is to serve a second term as central bank governor of Israel, following the passage of a reform bill that he had declared a pre-requisite.
Zambian-born Professor Fischer was educated at the London School of Economics and MIT, among others. He was Ben Bernanke’s thesis advisor.
Here are few observations on the Bank of Japan’s move today to supplement our news story and an analysis that should be online shortly. To recap, the BoJ expanded its three-month, 0.1 per cent lending programme from Y10,000bn to Y20,000bn in a 5:2 split decision on the policy board.
As a response to political pressure it is effective and subtle. I’m sure the two external board members who dissented did so for their own reasons, but it’s a neat reminder to politicians that the central bank is independent, and not designed to be easily biddable.
The three-month loans will be dribbled into the market at a rate of Y800bn a weak for the next three months (to ease their eventual withdrawal). For the next three months the BoJ will be able to point to the programme and say, “We’re still increasing loans and waiting to see what happens.”
The two dissenters
My conclusion from a study of the tea leaves is that the policy board split was not on economic fundamentals. Instead I think
The strengthening krona and uncertain access to finances in the medium-term have pushed Iceland to cut its rates by 0.5 percentage points in spite of rising inflation.
The deposit rate (current account rate) will be lowered to 7.5 per cent. The maximum bid rate for 28-day certificates of deposit will be 8.75 per cent. The seven-day collateral lending rate will be 9 per cent and the overnight lending rate 10.5 per cent.
The Bank of England’s minutes of the March Monetary Policy Committee meeting were mildly hawkish this morning.
Mildly because the Committee reiterated its view that:
“Committee members continued to expect that a significant margin of spare capacity in the economy was likely to bear down on inflation, once the temporary impact of shocks to the price level had worn off.”
Hawkish because some members of the Committee thought the balance of risks to inflation had increased in March from February:
“Some members considered that the upside risks to inflation had increased slightly over the month; others felt that the balance of risks had not changed materially.”
There is no point trying to work out how many “some” was, since all of the MPC voted to leave policy unchanged.
There has to be a suspicion, however, that the Bank is playing expectations games again.
It’s happened again. Both employment and unemployment fell last month, and at an increasing pace.
Unemployment was down 2.458 -> 2.457 -> 2.449m (December -> January -> February).
The Bank of Japan has held rates at 0.1 per cent, but doubled the value of loans available to 20,000bn yen.
To give it its full title, the extension applies to fixed-rate funds-supplying operations against pooled collateral. For three months, roughly 800bn yen will be made available twice a week to eligible counterparties. The previous operation was once weekly. (Prior to that, the rate was not fixed, but decided by competitive auction.)