Daily Archives: September 15, 2010

Alan Beattie

Big day on the Hill on Thursday as Mr Secretary does the rounds talking about China: the Senate banking committee in the morning and the House of Reps ways and means committee (which spent yesterday on another auto da fe hearing about the Chinese currency) in the afternoon. He faces a Blondinesque balancing act of being mad enough at Chinese foreign exchange intervention to placate angry lawmakers while not committing to precipitous and possibly WTO-illegal action like agreeing to currency tariffs.

Last time he was in this position, on June 10, Geithner rather neatly managed to amplify the complaints of senators in the hope that they would be heard in Beijing without necessarily endorsing them. Nine days later, China unpegged the renminbi. He will most probably try some version of this again on Thursday and hope that puts enough pressure on Beijing to take its foot off the renminbi brake for a while. Would that placate the senators and the congressmen? No. (Appearing in front of congressional committees, Geithner somewhat resembles a put-upon nephew who has been deputed to break some bad news to a gang of irascible uncles.) But would it do enough to stop them forcing currency legislation on to a crowded fall legislative schedule? Probably, yes.

Robin Harding

I hadn’t heard this until today so apologies if I’m behind the times.

Long-standing Fed jargon for quantitative easing is Large-Scale Asset Purchases, or L-SAPs. But there is a new bit of jargon, inspired by the ideas of St Louis Fed president James Bullard, who wants any new round of QE to involve a series of smaller purchases, calibrated and adjusted in response to the economic data. Read more

“A US monetary policy shock has effects on output and inflation in other countries that are of the same order of magnitude as its effects on the US.” This is one of two startling conclusions from an ECB research paper out today.

The second finding is that monetary policy and exchange rate shocks are intrinsically short-term: Read more

In an important piece of positioning, Mervyn King, Bank of England governor, has made it clear that the Bank is there to serve Britain’s interests, not those of commercial banks, the City or indeed itself.

This has always been the governor’s position, but the message has been difficult to communicate up to now because the Bank, and Mr King in particular, have refused to take responsibility for their role in the financial and economic crisis. He always described the policy mistakes as a result of the powers the Bank lacked rather than the mistakes it made. The governor has made a welcome and decisive break with that rhetoric today:

“After a decade and a half of stability, with rising employment and living standards, came the crisis and recession – the biggest economic upheaval since the Great Depression. Before the crisis, steady growth with low inflation and high employment was in our grasp. We let it slip – we, that is, in the financial sector and as policy-makers – not your members nor the many businesses and organisations around the country which employ them. And although the causes of the crisis may have been rooted in the financial sector, the consequences are affecting everyone, and will continue to do so for years to come.”

His speech to the Trade Union Congress was able then to deliver an important message that there are no easy solutions to the economic crisis, which will not go down so well with the brothers in Manchester. The main forward-looking points in the speech are as follows: Read more

At first glance, the numbers are finally going in the right direction – for men, at least, and driven by record-breaking levels of part-time work.

The labour market is growing again: employment rose and unemployment and inactivity fell in the second quarter, latest ONS figures show. The employment rate, which had been falling steadily, rose 0.4pp to 70.7 per cent, while the unemployment rate tempered slightly from 7.9 to 7.8 per cent.

This is a welcome change from several months in which both employment and unemployment were falling: i.e. the labour market was shrinking.

But the good news has a definite sex bias. Good news for male workers overshadows or is offset by a mostly worsening picture for women. For instance, Read more

Whether prompted by inflation or politics, the yuan continues to strengthen, today at its highest level against the dollar since 1993. Seen in context, the strengthening is small – it’s the little squiggle on the far right of the chart, right. Compared to the currency’s ‘real’ value – according to the US – of USD1:RMB4-5, the shift is hard to spot.

But we have now seen five days of appreciation in a row, and the judicious appreciation of the Chinese currency makes good headlines, breaking records along the way. As Alan points out, it is likely to be just enough to deflect criticism at the G20. The chart below shows the daily midpoint set by Safe, the forex regulator, against the tolerance band of the original peg. Read more

Alan Beattie

Yowkers. Interesting timing for Japan to go back into the FX markets and sell the yen for the first time in six years. On Wednesday the US Congress cranks up its China currency campaign again, this time the House as well as the Senate coming up with a bill allowing the US to block Chinese imports on grounds of currency misalignment.

As I wrote before, it’s not clear which way this development cuts. Does it make it easier to confront China because another G7 country has been forced to deal with the effects of Chinese currency intervention, or does it make it harder to argue that China should stop intervening when Beijing can point at Tokyo and say “them too”? Read more

Robin Harding

There has been plenty of comment on the ridiculously long time it is taking to fill the three vacant seats for governors at the Federal Reserve Board in Washington.

The three nominees up for Senate confirmation are Janet Yellen to be vice chair plus Sarah Bloom Raskin and Peter Diamond to be governors.

The prospects for getting any of these nominees through in the three week Senate session before the mid-term elections now look pretty bleak – and if so they will not be sitting at an FOMC meeting until December 14th at the earliest. Real Time Economics reports Senate Banking Committee chairman Christopher Dodd as saying: “We’ve got a limited amount of time here, I don’t know if there’s going to be any appetite to deal with these Fed nominees.”

This is what I understand to be the state of play Read more