Daily Archives: August 10, 2010

James Politi

There was about a 50-50 chance that the Federal Reserve would take the course it chose today with the decision to reinvest proceeds from expiring mortgage-backed securities – a level of uncertainty over the outcome of a Fed meeting not seen in months.

For Ben Bernanke, this probably marked his trickiest day in the office since being confirmed to a second term as chairman in January. And Mr Bernanke certainly delivered on his reputation for being an able consensus-builder. Read more

Big news from the Fed: they are to start reinvesting principal payments into longer-term Treasury securities (technical details out shortly). This will keep the Fed’s securities holdings steady instead of allowing them gradually to deplete.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

 Read more

Will Moody’s, S&P and Fitch downgrade each other? The Fed is looking to end its reliance on credit ratings – possibly changing Basel rules to boot.

The Federal banking agencies* have identified their use of those ratings, and are now requesting comments on the best replacements. From the horse’s mouth: Read more

Economists surveyed by Chile’s central bank believe a 50 basis point rate rise is on the cards for Chile. The August policy rate will rise from 1.5 to 2 per cent, according to the median estimate of 37 economists. At year-end, the rate will be 3.5 per cent – a 50bp rise from last month’s survey – rising to 5.75 per cent by mid-July 2012. Historical rates are shown below:

Excerpts from Chris Giles’ piece on ft.com.

The forecasts used by the Bank of England to set interest rates are biased and contain little useful information, a Financial Times audit has demonstrated… Forecasts since 1997 have achieved no better outcome than if the committee had simply predicted the average level for inflation and growth over the 13-year period… Read more

It’s as good as zero. The ECB has apparently reduced its bond purchases to €9m for the week to August 7 — a mere 0.055 per cent of the initial €16.5bn outlay when the programme began in May and not even visible on the chart, below. Peripheral countries’ bonds were bought to keep demand up and yields (ie the government cost of debt) down. The eurozone crisis has abated since then — except, perhaps in Greece — so this highly unusual measure has arguably run its course.

*Ralph is away

Ukraine is still cutting rates – the discount rate has been reduced from 8.5 to 7.75 per cent. Collateralised and unsecured overnight rates remain at 9.5 and 11.5 per cent, respectively.