Daily Archives: July 14, 2010

James Politi

US central bank officials have become increasingly worried about the contraction in spending by state and local governments, which is offsetting and undermining the remnants of the $862bn fiscal stimulus passed last year – and – to a certain degree, also their own efforts to boost the economy through easy monetary policy.

In this context, it is no surprise that staff at the New York Fed today released their own report on the budget crises in two states in their distrcit: New York and New Jersey, which are each grappling with multi-billion dollar deficits and are having to make tough choices on spending cuts.

 The most interesting part of the study comes towards the end, when authors, Richard Deitz, Andrew Haughwout and Charles Steindel, come up with a series of policy recommendations for state government officials in Albany and Trenton. Read more

James Politi

Now it’s official. The Federal Reserve is definitely on guard about the possibility that it might have to ease monetary policy further in response to the sputtering US economic recovery, according to minutes of the Federal Open Market Committee meeting held in late June.

Here’s the key language: “Members noted that in addition to contuining to develop and test instruments to exit from the period of unusually accomodative monetary policy, the committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably”. Read more

Euro area inflation fell to 1.4 per cent in June, echoing the disinflationary trends seen in the US and UK. But at least of equal interest is the break-down in trade-off between inflation and unemployment. Compare the scatter below to its March equivalent and see an exceptionally flat and ‘noisy’ Philips curve. The explanatory power of the March line of best fit was 54 per cent, but this is now just 2 per cent.

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James Politi

Another day, another bad report on the state of the US recovery.

Today, it was the US Census Bureau’s report on retail sales for June that ended up disappointing economists, showing a 0.5 per cent drop over the month as well as revisions to earlier data. Clearly, US consumers, who had started to spend again quite aggressively in late Winter, have since retrenched, amid persistently high unemployment and weakness in equity markets.

Yesterday, the bad news had been on the trade side, with an unexpected widening of the US trade deficit as imports, particularly from China, outpaced exports. Read more

Stress testing could become an institution in itself. Adair Turner has told reporters he expects authorities to move toward annual stress tests, which would be made public, and behind them tests of specific institutions running on a rolling basis. The head of the FSA also repeated his assertion that British banks would fare well under European stress tests, and that those tests would be sufficiently stringent. His reasoning, though, will not comfort markets.

First, Lord Turner describes the European tests as “adequate” rather than, say, “stringent”. And second, his confidence in British banks is founded upon private scenarios run by the FSA last year, which he describes as “more extreme” than those planned by Cebs, Reuters reports. Read more

There have never been more part-time workers in the UK, since at least 1992, when ONS downloadable data begin. The level – now at 7.82m – helped drive another quarter of rising employment, though aggregate hours worked fell, ONS data show. Read more

Thailand has joined the long list of Asian countries reducing the slack in their monetary policy. The Bank of Thailand has just raised the policy rate 25bp to 1.5 per cent, the first rise for almost exactly two years.The statement avoided the use of the word ‘tightening’, pointing out that they were merely reducing “exceptionally accommodative monetary policy”:

Although inflationary pressure remains modest at present, it is expected to rise next year in line with robust economic expansion. The MPC judges that the economic recovery has become more evident and the economy should continue to grow, thus lessening the need for an exceptionally accommodative monetary policy. With a view to bringing policy interest rate closer to normal levels, the MPC therefore decided to raise the policy interest rate by 0.25 per cent per annum, from 1.25 to 1.50 per cent per annum, effective immediately.

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