Washington returning to work after August and the Labor Day holiday, and some chatter about the prospect that currency intervention by Tokyo will complicate the diplomatic drive to get Beijing to ease off selling renminbi. The White House just despatched (who else?) Larry Summers on a charm offensive to China to ask for faster appreciation, and would dearly like the rest of the G20 to line up behind its campaign. The bad cop role is being played by Congress, which is holding a high-profile hearing on the issue next week.
But as sage Washington observers note, that becomes a harder sell if a prominent G20 member – indeed, a G7 member – is intervening as well. Of course, Washington could argue that Japan was forced into extraordinary action because of China’s persistent intervention. But at the very least it complicates the choreography.
By the end of this week it looks like President Obama will have proposed a $180bn economic package – $100bn on R&D tax credits, $50bn on infrastructure spending, $30bn on accelerated capital allowances – although the White House seems determined not to call it a stimulus for fear of scaring the Congressional horses.
How effective might the measures be in boosting the economy?
R&D tax credits
There’s little doubt that it makes sense to make the R&D tax credit permanent given that Congress has been passing temporary extensions to it for more than a decade. It makes the budgetary numbers more honest and gives business more certainty.
As a stimulus measure, however, its impact is limited precisely because the R&D credit has always been temporarily extended and
Back from holiday and nothing has happened which materially changes the British economic outlook. At its August meeting the vast majority of the Monetary Policy Committee (eight out of nine) thought doing nothing was the best option and “stood ready to respond in either direction as the balance of risks evolved”. The balance of risks has not changed, so we can be quite sure that, unless the Committee takes leave of its senses, monetary policy will remain unchanged on Thursday.
Michael Saunders of Citi put it well, writing:
“It is often tempting to stress uncertainties, but in our view this month’s MPC decision really is not a close call.”
That said, sensible economists continue to disagree about the next move for the Bank. That might be expected following Bank forecasts which we know contain no useful information at forecasting horizons of a year or more. But the following arguments are still interesting.
Will the balance tip towards rate cutting? This week’s rate announcements come from all quarters — rate-raisers, rate-cutters and rate-holders — and may provide a good proxy for central bank intention.
So far rate-holder Japan and rate-raiser Australia both held, albeit for different reasons. Tomorrow, rate-raisers Canada and Brazil report their decisions. Then Thursday offers a rate-holder (the UK), recent rate-raiser (South Korea) and rate-cutters (South Africa and discount rates from the US).