Daily Archives: July 1, 2010

James Politi

The long Independence Day weekend is going to be particularly busy for Janet Yellen, Peter Diamond, and Sarah Bloom Raskin, who will likely spend less time eating burgers by the swimming pool and more time preparing for a round of questioning from US Senators.

With the economic recovery looking ever so shaky, it will come as a relief that the Senate banking committee has finally scheduled a confirmation hearing for the three nominees, and July 15 is the magic date.  Assuming everything goes smoothly, the three candidates to the Federal Reserve board of governors should be taking up their posts by August, in time, especially, for Ms Yellen to replace retiring Don Kohn as vice-chair. Mr Kohn is slated to leave the central bank on September 1. Read more

James Politi

It was a rough day on the economics beat here in Washington. Rough in terms of America’s hopes for a strong economic recovery, that is.

Let’s recap. At 8.30am, the labor department released its weekly jobless claim figures. They were up unexpectedly to 472,000. Back in April, when job creation seemed to gathering momentum, many economists were looking at the stubbornly weekly jobless claims data as an aberration. Eventually, the numbers would have to move closer to 400,000. But now, the opposite seems true and private payroll growth looks destined to be modest, with persistently high unemployment and therefore high jobless claims. We’ll know more tomorrow from the more important monthly government jobs report, but still, the labour market outlook is not rosy.

Then, at 10am, a double punch in the face. The ISM manufacturing index dropped a lot more than expected in June, suggesting that one of the bright stars of the recovery is beginning to fade. Most economists knew that after inventories were restocked, there would be some loss of momentum. Read more

British men are alone in thinking inflation is tempering. Presumably women outnumber men by quite some margin in the sample, because in every other category of this YouGov survey, inflation expectations are rising. All regions, all classes and all age groups think near-term inflation is on the up. Taken together, prices are expected to rise by about 3 per cent in the coming year.

Are men being contrarian? No, they were just a little hasty last month. Their expectations jumped 0.6pp, and tempered this month by 0.1pp, whereas women took the more cautious route of two modest hops up. Read more

Who needs context? “Yuan ends near post-revaluation high,” runs one of many excitable headlines.

Since the great unpegging, the yuan hit a ‘peak’ of 6.7801 on Wednesday. That’s a peak-to-trough movement of 0.69 per cent in the past nine days. For comparison, the dollar-sterling exchange rate peak-to-trough movement has been four times that, at 2.9 per cent. Read more

James Politi

Goldman Sachs economists have been among the more bearish forecasters on Wall Street, seeing an incredibly sluggish recovery with inflation falling close to zero and unemployment hovering around 10 per cent through the end of next year.

So last night, they released a 32-page paper taking their view to its most logical conclusion. If they ran the Federal Reserve, they might well be contemplating further policy accommodation. “In the short term our model combined with GS economic projections implies that further macroeconomic easing would be optimal to counter stubbornly high unemployment and falling inflation. With the funds rate already at zero bound, additional stimulus would need to come through fiscal easing and/or renewed asset purchases.”

The GS paper goes on to say, to no great surprise, that if the additional easing is carried out on the fiscal side, “it should be paired with legislation that brings the federal budget back onto a sustainable path via a combination of spending cuts and tax increases.”

Instead, if the focus is on asset purchases, GS warns that the Fed would have to be “realistic” about the outcome, since there is a potential problem of diminishing returns. Read more

Everything a start-up could need: an office in Luxembourg, a website that’s impossible to find on Google, a jazzy logo and now a new boss. The new company even has €440bn to call upon. What could possibly go wrong?

Meet Klaus Regling, former Director-General for economic and financial affairs at the European Commission. He is a German national who has worked for the IMF in Washington and Jakarta, as well as in the private sector. Read more

Sweden’s central bank has raised the repo rate 25bp to 0.5 per cent, the first rise since September 2008. The Riksbank cited a strongly performing economy, and the need to raise inflation, currently at 1.2 per cent, towards its target of 2 per cent.

Less credit was available to the corporate sector between April and June than at any time since 2008, and the situation is not expected to improve next quarter. This from the Bank of England’s credit conditions survey, just released.

The fall was unexpected. Lenders are asked for their assessment of the past and future quarter. In Q1, they were optimistic about future corporate credit availability, with a balance* of +22.7 for Q2. The actual figure for Q2 was just +7.1, the lowest since Q408 (see chart).

The numbers are still positive, meaning credit is, on balance, perceived to be expanding. But the sudden and unexpected change in trend is cause for concern.

Principal drivers behind the fall were the changing economic outlook and sector-specific risks. Read more

The new head of Poland’s central bank says inflation could rise above 3.5 per cent, a percentage point above target. Dow Jones reports:

The Monetary Policy Council of the National Bank of Poland Wednesday dropped its informal neutral policy bias from its interest rate meeting statement and sees new upside risks for consumer price inflation, central bank Governor Marek Belka told a press conference Wednesday…. Read more