Daily Archives: April 30, 2010

Simone Baribeau

Baby steps.

The Federal Reserve today moved one – itty bitty – step closer to getting reverse repos ready to drain the system of excess reserves. Not that they’re in much of a hurry – monetary tightening still seems to be a long way off in the distance, but nice to be prepared. Read more

Simone Baribeau

The Federal Reserve today released the transcripts from its 2004 FOMC meetings. Here’s a prescient comment, if ever there was one, from Cathy Minehan, president of the Boston Fed:

I remain concerned that the current very accommodative stance of monetary policy and the assureances that markets seem to have that we are on hold has increased leverage across all markets. When rates return to a more neutral place, as they ultimately will, this could create a burst of financial instability.

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So this is what ‘no change’ looks like: 123,000 more people unemployed in just one month. Most European unemployment rates rose last month, but the headline figure remained at 10 per cent because of falling unemployment rates and large populations in a handful of countries. Latvia is still suffering terribly, with unemployment rising to 22.3 per cent from 21.6 per cent in a single month.

Inflation is a better picture, with levels mostly close to target and almost all trends looking healthier. Slovakia and Estonia have pulled themselves out of deflation for the first time in months; Irish deflation is steady; and even Latvia’s deflation has tempered a little, from 4.3 to 4 per cent. Greece, and perhaps surprisingly, Norway, are experiencing steady-ish rises to 3.9 and 3.6 per cent, respectively. Only in Iceland is the trend a real cause for concern: inflation is still rising quickly, from 10.7 per cent last month, to 11.6 per cent this month. The spread of inflation among the countries – a very crude measure – has risen from 15 percentage points last month to 15.6pp this month.

Robin Harding

We’ve learned a little more about the Bank of Japan’s “new efforts to contribute to strengthening the foundations for economic growth”. The message is that they will not be aimed at loosening overall monetary conditions – something that was far from obvious in the initial release.

Instead the goal is to find ways to stimulate bank lending, particularly to growth-creating entities such as venture companies, although how this is to be done without the BOJ taking any credit risk I’m not too sure. Read more

Figures just out suggest a trend reversal in the growth of the American economy. An advance estimate from the Bureau of Economic Analysis shows US GDP rising at a seasonally-adjusted annualised rate of 3.2 per cent in the first quarter of 2010. The previous rate, for the last quarter of 2009, was 5.6 per cent.

“Negligible” risks of a Greek default but “multi-notch downgrade” likely. This from Moody’s in a confusing note yesterday. The ratings agency retains a downgrade review on the country but — unlike S&P — will wait till “shortly after the details of the euro area/IMF programme are unveiled”.

* Moody’s has consistently maintained that Greece’s short-term liquidity and restructuring risks are negligible given the depth of international commitment to maintaining regional financial stability…

* Moody’s believes that the appropriate repositioning of Greece’s rating should therefore be based on the country’s medium-term credit fundamentals…

* Moody’s has previously indicated that a multi-notch downgrade is likely, and that

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Liberalisation, scaling back the state and reduced terms for public sector workers – that is the package required to secure a multi-billion euro loan from the eurozone and IMF:

Read more on ft.com.

Robin Harding

The Bank of Japan often complains that it is misunderstood. Today’s train wreck of a monetary policy statement explains why:

1. At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:

The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.1 percent.

2. At the Meeting, Policy Board members examined the Outlook for Economic Activity and Prices. Based on the recognition that Japan’s economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability, it was confirmed at the Meeting that, in the conduct of monetary policy, the Bank would aim to maintain the extremely accommodative financial environment.

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