Richard Fisher, the president of the Dallas Fed, tells off the markets and the media in a speech today for being presumptuous about what the Fed has decided.
“I am afraid that despite recent speculation in the press and among market pundits, we did little to settle the debate as to whether the Committee might actually engage in further monetary accommodation, or what has become known in the parlance of Wall Street as “QE2,” a second round of quantitative easing. It would be marked by an expansion of our balance sheet beyond its current footings of $2.3 trillion through the purchase of additional Treasuries or other securities. To be sure, some in the marketplace―including those with the most to gain financially―read the tea leaves of the statement as indicating a bias toward further asset purchases, executed either in small increments or in a “shock-and-awe” format entailing large buy-ins, leaving open only the question of when.”
I’m one of the naughty boys in the media. But Mr Fisher has been a bit naughty, too, because he shouldn’t be telling us about the last FOMC meeting before publication of the minutes.
The Federal Reserve could adopt an explicit inflation target like that of the UK in order to keep up public expectations of future price rises, one of the most influential regional Fed presidents has said in a speech. Inflation targeting has long been controversial within the Fed, not least because it is hard to make compatible with the Fed’s dual mandate from Congress on growth and inflation.
William Dudley, the head of the Federal Reserve Bank of New York, said that being more explicit about the Fed’s goal “could help anchor inflation expectations at the desired rate” and “clarify the extent to which the current level of inflation falls short of that rate”.
Ewald Nowotny, Austria’s central bank governor, appears to have gone slightly off-message in an interview with WirtschaftsWoche, the German business magazine. The European Central Bank was seeking to correct “inefficiencies” and “imbalances” in bond markets with the purchase programme it launched at the height of the eurozone crisis in May. “As long as there are these inefficiencies, we will correct them,” he said.
That gave the impression the ECB was somehow trying to control the market. The official line is that the bond purchases are meant, simply, to restore the monetary policy “transmission mechanism”.
Still, I am not sure Mr Nowotny was really suggesting the programme had been scaled-up to bring down, say, Irish bond spreads. Indeed, he emphasised that the ECB had spent only about €60bn under the programme since May, which was “not a lot”.
Anglo’s failure would “bring down” Ireland, its Finance Minister said Wednesday. But the bail-out’s dependence on Ireland’s pension fund might do much the same thing, argues Ashby Monk.
Ireland is lucky to have a sovereign wealth fund, he points out; the bail-out would have been a great deal more painful without it. But the intergenerational “piggy bank” was meant to be left untouched till 2025.
It’s official: financial system stability is part of the Reserve Bank of Australia’s mandate. This doesn’t mean, though, that the RBA will be bailing out banks.
The Reserve Bank’s mandate to uphold financial stability does not equate to a guarantee of solvency for financial institutions, and the Bank does not see its balance sheet as being available to support insolvent institutions.
With little fanfare, a statement published on the Bank’s website “records [its] common understanding of the Reserve Bank’s longstanding responsibility for financial system stability… arrangements which served Australia well during the recent international crisis period.”
Poland’s central bank will aim to keep annual inflation as close as possible to its target of 2.5 per cent, rather than targeting a range of 2.5 per cent ± 1 per cent.
The shift in emphasis was mentioned in an assumptions document in the Bank’s 2011 Monetary Policy Guidelines. “Monetary policy is clearly targeted at keeping inflation closest to the 2.5 percent target rather than inside the wider range (of 1.5-3.5 per cent),” reads the document according to a Reuters translation. “This solution allows for the anchoring of inflation expectations,” says the document (via Google Translate), “[which] are not yet anchored sufficiently low.”
Polish news agency PAP reports, via Business Week: