It hasn’t been a good day for Ireland. First, they get told off by the ECB for not submitting their opinion request in a timely manner. Then BarCap issues a report saying the Irish government might require help if further unexpected financial sector losses materialise and economic conditions deteriorate.
Cue much bond selling, taking yields on two-year bonds up to 3.63 per cent. The ECB has been buying small amounts of bonds today, according to traders in Dublin, but that is not unusual of late. Read more
The Cleveland Fed has put out its latest estimate of inflation expectations: it now has ten year expectations down at 1.54 per cent.
Don Kohn, the Fed vice-chairman who retired at the end of August, is now available to give talks, according to the website of the Washington Speakers Bureau. Nobody knows the Fed better and his insight will no doubt be in high demand. He will be speaking at a dinner for Deutsche Bank clients next Wednesday and at an event for RBS the week after that.
Unlike former Fed chairman Alan Greenspan – who attracted some criticism for giving talks before the minutes of his last FOMC meeting were even published (including from the FT) – Mr Kohn is waiting until after the FOMC’s next meeting on September 21st. There will probably still be a few grumbles, but Mr Kohn has gone beyond what the rules require of him, and after his decades of service to the Fed it is inconceivable that he would say or do anything that compromised the monetary policy process. Read more
Energy prices pushed US consumer prices up 0.3 per cent in August, as in July. (Without seasonal adjustment, the increase was 0.1 per cent.)
Holding energy and food prices constant, however, prices would have been static on the month. This is unusual: for the past three months, the index for all items less food and energy increased. Year-on-year, this index has remained at 0.9 per cent for five straight months, making the headline rise in inflation potentially misleading. Read more
UK shop prices will rise by 3.4 per cent over the next 12 months, according to the Bank of England’s August survey, up 0.1pp from May. This is higher than the current 3.1 per cent level of inflation, and much higher than the BoE’s central forecast of about 2.65 per cent (see chart 5.9) and other forecasters’ average view of about 2 per cent.
While the increase in median expectations between May and August is small, the shift is noteworthy, as the chart shows. Views are converging. Read more
Adam Posen, one of the more outspoken external members of the Monetary Policy Committee, has dangled the intriguing possibility of the Bank shifting into “heavy-duty credit easing” if necessary.
The Bank had promised to release the remarks he made in the US last night and I understand the reason they have not is cock-up not conspiracy. That means we have to rely on wire reports of his words. Without much context, Bloomberg is reporting Mr Posen saying:
“Because we have only done quantitative easing up till now, our plan B or our next page in my opinion, and I’ve said this, is to shift into heavy-duty credit easing.”
For Bank of England watchers, this should come as little surprise. While the bank has usually emphasised the amount of money it has created (a liability on its balance sheet), Mr Posen has regularly highlighted the effect of QE on the assets markets. It is also not much of a departure. Mr Posen has repeatedly said similar things. In a speech last October he bemoaned the fact that:
“Other central banks were able to buy a wide range of assets from the private sector, under the heading of ‘credit easing,’ as described in Bernanke (2009), to good effect.”