An ‘extended period’ with no strings attached
In terms of monetary policy, the message from senior Federal Reserve officials today was not to read too much into their pledge of keeping interest rates low for an “extended period”.
In separate speeches, Donald Kohn, the vice-chairman, and Narayana Kocherlakota, president of the Minneapolis Fed, made clear that the phrase could mean pretty much anything under the sun, since the timing of any policy tightening would be determined by the health of the economy. Read more
It’s certainly one way to raise money: Albania’s central bank is to buy a hotel from the government for €30m. The Council of Ministers will retail first refusal on the Hotel Dajti in Tirana, should the central bank sell it on.
Reuters says the government also hopes to issue a €300m – €400m eurobond by the end of next week. The IMF has told Albania it needs to cut its deficit from 7 to 3 per cent this year — a feat very few European economies could achieve. Read more
Mortgage rates and MBS purchases (and sales)
The 30-year fixed rate mortgage rate in the US fell this week to a five month low of 4.93 per cent, according to Freddie Mac.
Mortgage rates had spiked above 5.20 per cent early last month, just after the Federal Reserve ended its $1.250bn plan hatched during the financial crisis to purchase mortgage-backed securities and support the housing market. Read more
Wonderful Treasury forecasting
In researching an article on the Treasury and its role in deficit cutting, I spoke to some senior officials in the building quite a while before the election. I have just looked back at my notes. One said that cutting borrowing would be a long grind, not something you sort out overnight. It would be hard work and require persistence and confidence, he continued, before stating that most important would be keeping a coalition in favour of consolidation.
If only other Treasury forecasts had been so accurate. Read more
The UK’s new coalition has just announced a new austerity measure: a five per cent pay cut for ministers. It is a token gesture, but a sign of things to come.
There’s been a slew of austerity measures in the past few days from deficit-ridden economies: Greece, Portugal and Spain have all made announcements. Italy, Ireland and the UK have dipped their toes in, too. Read more
Eurozone
Other news Read more
The ECB and the lessons of history
Sometimes you have the feeling that the European Central Bank just wants to turn to US academics and say: give continental Europe a break.
The ECB’s May monthly bulletin has a special article on the “Great Inflation” of the 1970s and the lessons for monetary policy. Like the Great Depression, the high inflation rates of that decade, which exceeded double digits across the industrialised world, amounted to one of the most serious monetary policy failures in the 20th century, it says. Read more
About €35bn. That is a rough estimate of eurozone government bond purchases by European central banks since Monday.
Spreads between peripheral countries’ debt and bunds have been narrowing, as dealers report strong purchases of Portuguese, Irish, Greek and Spanish bonds. Maturities are reported at up to 10 years and lot sizes are €25m – €50m. Read more
The ECB, Estonia… and Greece
Jean-Claude Trichet claims the European Central Bank foresaw the financial market crisis that erupted in August 2007. In January that year he warned markets to prepare for a significant “re-pricing” of some assets.
He could also argue that Greece’s downfall could have been predicted by anyone listening to the ECB. Read more
Pain of deficit reduction remains hidden
I’m not sure the coalition agreement lives up to the billing. Compared with budget plans the government has inherited from its Labour predecessor, the agreement includes no specific new spending cuts, lots of public spending pledges, copious tax cuts and a commitment to faster deficit reduction. Unless there are huge spending cuts or tax increases planned but not yet announced, far from contracting, the deficit is about to deepen.
Mr Osborne will have to announce public spending cuts of £57bn a year by 2013-14 from a non-protected budget of about £260bn – cuts of about 22 per cent. The next few months will see the government progressively coming clean about these figures, blaming its predecessor for the mess it has inherited, and softening the public up for the brutal cuts to come. Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
