William C Dudley, New York Fed president, earlier this week called for central bankers to use the ‘bully pulpit’ to pop asset bubbles. Though Ben Bernanke, Fed chairman, has suggested that the Fed may be ready to consider addressing asset bubbles (until recently considered too difficult to identify to address), it was the first time that a Fed official spelt out which tools the Fed would use. Central bank officials have often used the red-herring that changing interest rates wouldn’t be effective in leaning against bubbles. (Sure – but aren’t there other tools?)
According to an interesting follow-up interview on NPR today, Mr Dudley tells Planet Money that he doesn’t think there is any “appreciable difference” between his views and those of Federal Reserve chairman Ben Bernanke.
Mr Bernanke hinted in his February testimony to Congress that the Fed – which had previously appeared not to see addressing asset bubbles as part of its mandate – may be on the verge of doing so, saying that there is no “obvious bubble” in the US economy but, if there were “then the response probably would depend on which asset it was, what part of the economy it was.” He went on to say that the Fed would “have to see what tools” it had to address it.
It turns out, of the tools Mr Dudley mentions, the bully pulpit – having central bank officials publicly talk about the bubble – is the first one he lists. Read more
The central bank of Greece is making life harder for those short selling its debt.
Traders’ short positions will be automatically covered at the end of each trading day by the country’s Electronic Secondary Securities Market, HDAT, run by the central bank.The short positions will be covered regardless of the price. The move could reduce liquidity and increase trading costs. Insofar as it reduces short selling of Greek bonds, it should increase the price and reduce the yields. The yield is the interest rate paid by the Greek government on the debt they issue. Read more
Jean-Claude Trichet’s performance at yesterday’s press conference was widely criticised by US and London-based financial analysts. The European Central Bank president’s attempts to build confidence in the eurozone’s Greece rescue plans were seen as unconvincing, as was his attempt to defend the ECB position on International Monetary Fund involvement.
But Germany’s Handelsblatt this morning provides a reminder of the diametrically opposite pressures Mr Trichet faces in the eurozone’s largest economy – where he is seeing as going too far in Greece’s defence. A full-page picture on the front shows a €50 note going up in flames and the headline “what remains of the euro”? On the next page is a short – but brutal – comment from Gabor Steingart, the newspaper’s new editor-in-chief. Read more
Japanese prime minister Yukio Hatoyama and central bank governor Masaaki Shirakawa met today. They agreed about everything. According to Dow Jones:
“We exchanged general economic and financial views,” Shirakawa told reporters. “As I have repeatedly said, the government and the BOJ share similar economic views,” he added. Read more
Don Kohn, the outgoing vice-chairman of the Federal Reserve, on Thursday forecast that the recession would cause structural changes to Americans’ spending patterns and make the economy healthier over time.
“The US economy should emerge from this episode stronger, more resilient and on a more sustainable growth path than before the recession,” Mr Kohn said in a speech in San Francisco. Read more