Daily Archives: May 6, 2010

Fed officials are watching the markets, trying to get to the bottom of the sudden plummet this afternoon and the various “fat finger”/programme trade theories for what happened. But across the nation – at the regional Fed headquarters as well as in DC – they have also kept an eye on C-Span and the “audit the Fed” amendment on Capitol Hill.

Right now Bernie Sanders, the independent, self-proclaimed “socialist” senator from Vermont, is preparing for the vote on his audit amendment, which would broaden the scope of the things Congress is allowed to investigate inside the central bank. The Fed has seen this as an existential threat – possibly ending almost 100 years of independence from political control. Read more

Simone Baribeau

At what point were Federal Reserve members obligated to warn about the risks a housing bubble posed to financial stability?

Ben Bernanke, then a Fed governor, spelt it out in a meeting in 2004, according to a recently released transcript. Fed members were periodically asked questions about perceived and actual risks to financial stability, he said, specifically citing a housing bubble as an example:

One’s inclination is to answer by painting a benign picture so as not to cause unnecessary public concern. On the other hand, financial conditions do change, and it’s our collective responsibility both to monitor those changes and to communicate truthfully to the public what we see.

Of course, truthful communication depended on what they knew and when they knew it. Nothing in the transcripts indicates that FOMC members were unduly concerned with the price of housing. It’s not that they didn’t periodically talk about housing bubbles in meetings or that strong evidence of a bubble wasn’t presented to them. Read more

Ralph Atkins

Today’s ECB press conference focused almost entirely on Greece and the possible knock-on effects on Spain and Portugal (where the governing council was, coincidentally, meeting).

If it had not, more might have been made of the change of language on inflation risks. I have noted in previous posts the signs of splits, with hawks such as Axel Weber, the Bundesbank president, and Jürgen Stark, the ECB executive board member, arguing that the risks had become tilted towards the upside when, officially, they remained “broadly balanced” . At today’s meeting, it appears that – as on possible extra help for Greece – the hawks got their way, at least partly. Jean-Claude Trichet’s introductory statement noted that near term risks to inflation were indeed tilted to the upside. Still on a medium term perspective they were “viewed as still remaining broadly balanced”. Sounds like a fair enough compromise.

Apparently, there is a great turnout today – some pundits are saying it might be the highest since 1997. But which party benefits most from high turnout?

Here is one indirect – some would say tenuous – answer: (1) the gap between Conservative and “progressive”  (Lib+Lab) votes narrows when turnout is high (see table); (2) the occasional voter tends to be more progressive than conservative (a controversial claim based on the idea that conservative voters are more motivated to perform their civic duty); (3) the progressive parties will split votes. Read more

In the last election, one seat required 26,900 Labour votes, or 44,300 Tory votes, or 96,600 Lib Dem votes. That astonishing Lib Dem figure – almost four times as many voters for a yellow seat than a red – is in fact a vast improvement on their historical average.

How the UK electorate has voted over time. The clear winner over time has been the “Didn’t Vote” party….

*Update* N.B. Our commenter rightly alludes to the disenfranchised, who are not shown on this chart at all. “Didn’t vote” covers those registered, but not voting.

Strong inflation data for April seems to have reassured the Swiss central bank into allowing the franc to strengthen to a new all-time high against the euro.

The franc has been strengthening all year, with the Swiss central bank often rumoured to have intervened, selling francs. Central bank governor, Philip Hildebrand, has previously stated a policy of intervention to counter “excessive appreciation”, but the bank never confirms individual cases. More on ft.com.

Ralph Atkins

The European Central Bank has left its main interest rate unchanged at 1 per cent for the 12th consecutive month as it prepares a response to the escalating crisis over eurozone public finances. The decision was widely expected by analysts. Eurozone inflation, at 1.5 per cent in April, continues to undershoot the ECB’s target of an annual rate “below but close” to 2 per cent, and is expected to remain moderate.

Jean-Claude Trichet, president, is facing pressure from financial markets to consider unprecedented emergency action when it comes to shoring up confidence in Europe’s 11 year-old monetary union. If the ECB decided further confidence-boosting measures were needed, one option touted by analysts would be to resume unlimited offers of one-year loans to eurozone banks. Some have even suggested the ECB could overcome its previous objections and purchase eurozone government bonds outright – following the “quantitative easing” programmes of other central banks. More on ft.com.

Ralph Atkins

When the European Central Bank circus leaves Frankfurt, seasoned watchers generally assume it will eschew dramatic action. Without the Frankfurt apparatus of advisers and experts, the feeling is that the 22-strong governing council will play it (extra) safe.

That is not always the case – for instance, at its Brussels meeting in December 2008, the ECB slashed interest rates by 75 basis points, which was a radical step for the notoriously conservative institution. Read more

You might soon be able to invest in roads, railways and power lines in Africa, if there is support for a suggestion from Kenya’s central bank. So-called infrastructure bonds have recently been put forward by the UK and US, but cross-border bonds are rare. Quite how they would be priced is unclear.

From Reuters: Read more

Fancy a bit of light relief after all that voting? Try to fix the UK deficit yourself with the FT’s interactive game, and see how bad the economy really is!