Thomas Hoenig, president of the Kansas Fed, fully spread his hawkish wings today. In a speech titled “the high cost of exceptionally low rates,” he called for the Federal Reserve to raise rates to 1 per cent from near zero by the end of the summer.
I have no illusions about the challenges of moving away from zero. But in my judgment, the process should begin sooner to avoid the danger of having to over compensate later, as so often happens in policy.
Dennis Lockhart, president of the Atlanta Fed, didn’t go as far as Mr Hoenig, but took a step toward signaling he would be willing to consider removing the Fed’s “extended period” pledge. “The time is approaching when it will be appropriate to consider recalibrating interest rate policy,” he said, but he did not think that “that time has yet arrived.”
So is the committee becoming more hawkish or are the hawks flying away from the committee? Read more
Ahead of the past few US nonfarm payroll reports (here, here and here), I’ve made a big deal about revisions to the headline numbers in the months (and years) after they’re initially reported. When the economy was getting worse, the Bureau of Labor Statistics massively underestimated the size of the losses in their first jobs reading (for several months revisions exceeded 100,000). Now that the market appears to be improving, the BLS seems to be underestimating the gains.
Q: What do jitters over European debt, stubbornly high unemployment and earthquakes have in common?
A: They have all been cited as reasons for central banks to delay interest rate hikes.
It’s not just economic crises that cause central banks to postpone tightening monetary policy. Since the beginning of the year, a number of political and natural disasters have pressured banks to keep rates low. Here is Money Supply’s list of the top three non-financial events that kept rates low. Are we missing any? Comments welcomed below. Read more
Here in Busan, South Korea, a port city which seems to double as the Blackpool of Korea, it is already clear that finance ministers and central bank governors will agree that growth is good for the world economy. Yes, really.
Is this surprising? No. Growth, like education and justice is generally a good thing. Everyone wants it. But no one is sure how best to achieve it when it comes to fiscal policy.
They are still unsure whether the global economy is best served by fiscal stimulus or prudence.
Everyone also agrees that the world economy is fragile and fiscal consolidation should be growth enhancing rather than detracting. But, in briefings before tomorrow’s Group of 20 meeting, few were willing to define exactly what they meant. Read more
By Delphine Strauss
Turkey’s monetary policy committee will breathe a sigh of relief at today’s data showing lower food prices brought inflation back into single digits last month.
Consumer price inflation fell to a year on year rate of 9.1 per cent in May, lower than analysts expectations and down from 10.2 per cent in April. Easing price pressures were largely due to falling food costs, as spring fruit and vegetables came to market and the government eased import quotas to bring down sky-high prices for red meat. Read more
By Farhan Bokhari
The resignation of Pakistan’s central bank governor, Syed Salim Raza, on Thursday was played down by a finance ministry official in Islamabad. “The stock market’s KSE-100 index rose by more than 1 per cent just today so obviously investors are unmoved” he said, referring to equity prices on the Karachi stock exchange, the main stock market. Read more
Eurozone banks are parking record sums overnight at the European Central Bank in the latest sign of heightened nervousness across the 16-country region’s financial sector. Read more
From FT Alphaville
Here’s a timely working paper from the BIS.
It’s a 91-page review of liquidity provisions during the financial crisis, including the multitude of currency swap lines initiated by the globe’s central banks. It’s timely because last month the Federal Reserve restarted its swap lines to help ease strains in short-term US dollar funding markets in Europe.
In late 2008, right before the collapse of Lehman Brothers, the Fed also upped its dollar lending to other central banks to help boost liquidity. So far, the Fed’s latest facility has extended a little over $10bn. In 2008, it provided a whopping $554bn in USD funding. And here’s where things get interesting.
From the paper:
Much of the sudden demand for dollar funding in international markets immediately after Lehmans’ failure appears to have resulted from the drawing of dollar funds by commercial banks in the USA from their related foreign offices.
By Gillian Tett Read more