Charles Evans, president of the Chicago Fed, has made a very strong call for further easing in an interview with the Wall Street Journal. Mr Evans is normally seen as being one of the FOMC’s moderates so this is a strong indicator that the centre of the committee is ready to launch further QE. The following pretty much commits Mr Evans to vote for further QE in November:
“Staring at our forecast, I knew this when we first put out those projections. I knew it was going to be bad. And it is not improving. We’re pushing out the growth prospects. I just think it calls for much more than we’ve put in place. My view on accommodation at the moment is not data dependent. I think we’re there.”
He also implies that he supports a change in communication, possibly along the lines of a more explicit inflation objective:
Is quantitative easing by itself enough without a different communication strategy by the Fed?
Evans: I think that additional asset purchases would have an effect. I think it would be beneficial. I worry that that alone would not be enough to address the particular view that I have.
It must be painful viewing for Ireland and Portugal. Whether it’s risk aversion or a straight out bond bubble, yields are still falling on US treasuries – meaning the US government can borrow ever more cheaply.
One-year bonds (or to be exact, 52-week bills) have risen slightly to 0.265 per cent, from September’s record low of 0.26 per cent. But the other maturities are at or approaching record lows. Read more
The International Monetary Fund is already the world economy’s fire fighting team (as well as police force). Does it need even more powerful tools to do its job?
Not according to Germany’s Bundesbank. It has today signalled strong opposition to the idea of a “global stabilisation mechanism” (GSM) that would allow the IMF to offer unlimited credit without conditions to several countries at once.
The idea of equipping the IMF to prevent an economic crisis on one country spreading to others, has been floated by South Korea, and has apparently been received sympathetically in France and the UK. But ahead of this weekend’s IMF meetings in Washington, the Bundesbank is warning that the plan could have the opposite of the desired effect. Read more
India’s Bank rate, standing facilities and Liquidity Adjustment Facility – in short, the key tools the Bank uses to transmit its policy decisions to the real economy – are to be examined and compared with processes at major central banks by a special team at the RBI. Suggestions for changes are expected in three months’ time from the newly constituted Working Group on Operating Procedure of Monetary Policy, the Bank said.
The system of daily auctions, which absorb or inject liquidity – the Liquidity Adjustment Facility, or LAF – will come under particular scrutiny. Here there are no sacred cows: the group will examine the frequency and timing of auctions; the maturity period of the repos and reverse repos used to inject/absorb liquidity; and the size of the gap between the repo and reverse repo rates (the “corridor”). Indeed, the group should consider whether there should be a corridor at all. If so, it should consider whether its width be fixed or variable; and how to optimise its efficiency. Read more
Japan’s central bank has lowered its key rate from 0.1 per cent to a range of 0-0.1 per cent and will consider setting up an asset-purchase programme worth about $60bn to enhance monetary easing and achieve price stability.
The Asset Purchase Program is, at this point, a consideration rather than a promise: the Chairman has asked staff to examine the specifics and report back. For a consideration, it is quite well fleshed out, however:
The Bank will examine the new purchase of assets so that, principally, the outstanding balance of the total assets purchased will reach about 5 trillion yen after around one year from the start of the purchase, with about 3.5 trillion yen for long-term government bonds and treasury discount bills and about 1 trillion yen for CP, ABCP, and corporate bonds