Fed QE2: the 2011 problem
The four voting members of the FOMC from regional Federal Reserve banks change every year. That may create an awkward situation for Fed chairman Ben Bernanke in 2011 if the central bank does restart large-scale asset purchases.
The four regional Fed voters this year are:
James Bullard, St. Louis
Thomas M. Hoenig, Kansas City
Sandra Pianalto, Cleveland
Eric S. Rosengren, Boston
US optimists and pessimists
Chris has an excellent post about optimists and pessimists on the UK economy and how you tell the difference.
As Chris puts it:
The Treasury, the IMF, the Office for Budget Responsibility and most in the Bank of England are the pessimists. They believe one of the two following possibilities: either that lots of capacity was lost permanently in the recession, or that the economy was fundamentally unsustainable before the downturn, as shown in this graph. I understand the IMF’s latest estimate is that the output gap is only 3 per cent.
What is not in a speech
Sometimes what is not in speech is more interesting than what is there. Three speeches today by Boston Fed president Eric Rosengren, Philadelphia Fed president Charles Plosser and Minneapolis Fed president Narayana Kocherlakota (and that of Atlanta Fed president Dennis Lockhart yesterday) were all interesting for their content – but also for what was missing.
All the Fed presidents talked about the effectiveness of further asset purchases; some touched on whether they think such asset purchases are a good idea. What none of them talked about is the appropriate size or modality of further asset purchases if they were needed. Read more
Falling Portuguese and Irish bond prices of late will have been hurting whoever is holding them. But who?
If the stress test result data is anything to go by, German banks are the most exposed of Europe’s larger banks. Caution is required here, as the stress test sample excluded medium and small banks, plus this is trading book data and positions will have changed. Caveats in mind, nine of the 14 German banks to be stress tested had exposure to Irish and Portuguese sovereign debt, totalling €4.1bn.
WestLB, Espirito Santo, Santander and RBS were easily the most exposed to the sovereign debt of both countries combined; each had more than €1bn in exposure, mostly for Portugal. Caixa Geral, Credit Agricole, HSBC and SocGen each had more than $750m.
These data should be seen in context: Read more
The ECB takes to the road
They could call it “waffle Wednesday”. Eight days before an European Central Bank interest rate-setting meeting there is usually a flurry of activity before the week-long purdah period starts. So it has been today with a series of speeches by governing council members in Brussels, Milan and Bolivia (yes, really, José Manuel González-Páramo, executive board member, is attending a conference there). The ECB has also put out a report on the future of European banks - and there was also a lot of attention on today’s open market operations, where banks had the chance to roll over €225bn in three to 12 month liquidity.
Actually, “waffle Wednesday” would not quite be fair. Speaking in Brussels Vítor Constâncio, the ECB vice-president, made some interesting comments dismissing the idea of “currency wars”. And Lorenzo Bini Smaghi, another executive board member, used a conference in Milan to point out how Basel III could make a lot of difference to central banks as they conduct monetary policy. The new rules could affect demand for central bank liquidity and the types of collateral put up, as well as increase demand in longer-maturity refinancing operations. Mr Bini Smaghi did not suggest this was going to be a big problem for the ECB. But it added to the long list of issues the ECB faces – which will continue to give its policymakers plenty of material for their speeches. Read more
The People’s Bank of China repeated its commitment to increasing its currency flexibility on Wednesday, the day before the US votes on a bill that would allow American companies to ask for tariffs on Chinese imports to compensate for a perceived undervaluation of the yuan.
From Business Week: Read more
UK economy: optimists vs. pessimists
The reporting of the International Monetary Fund’s assessment of the British economy and the important speech by Adam Posen has given the impression that the Fund is optimistic about UK prospects while Mr Posen is pessimistic. That is the inevitable consequence of news reports focus on downside risks to policy (the IMF gushed while Posen fretted). In fact, the reverse is true.
The argument, once again, hinges on the assessment of the UK’s potential for growth.
What follows from this distinction?
Everything. In monetary policy, Read more
Excerpted from Martin Wolf’s column:
In an era of deficient demand, issuers of reserve currencies adopt monetary expansion and non-issuers respond with currency intervention. Those, like Brazil, who are not among the former and prefer not to copy the latter, find their currencies soaring. Read more
| About this blog | Blog guide |
Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
