If Congressional opponents of QE2 mean business then Tuesday 16th November is their first chance to do something about it. The Senate Banking Committee will once again consider the nomination of Peter Diamond – now a Nobel prize winner – to be a governor of the Federal Reserve.
Opposition from Republican economists and politicians can be seen as something that increases the cost to the Fed of a ‘bad’ outcome to QE2, such as above target inflation, or future problems in financial markets. Even if the risk remains small, the greater the cost if things do go wrong, the more cautious the Fed has to be. Read more
The Bank of England today took three baby steps towards normality in its liquidity operations. None of these is significant in size, but together they show that Britain is, like the eurozone, seeking an exit from some of the unorthodox monetary policy.
In a notice today, the Bank said it was:
- giving 12 months notice of withdrawal for the Commercial Paper Facility, under which it bought short-term corporate paper. Today, it holds none, and this notice signals its intent to exit this market permanently
- withdrawing the Credit Guarantee Scheme Bond Secondary Market Scheme, which gave it the option to buy bank bonds backed by the government’s credit guarantee scheme. It has made no purchases and now will make none
- signalling its intent to sell more corporate bonds under the Corporate Bond Secondary Market Scheme. It will keep the scheme going but the decision comes as the Bank says the market has significantly improved.
Speculation has been rising in Washington in recent days that Roger Altman, the former deputy treasury secretary under Bill Clinton and chairman of Evercore, the New York financial advisory boutique, is in the mix for the position of National Economic Council director, left open by the departing Larry Summers.
The logic in favour of Mr Altman’s candidacy is undeniable. He already has economic policy experience at the highest levels, which would make him suitable to play the honest-broker role in terms of presenting options and advice to president Barack Obama. But has also spent the last fifteen years in the private sector, not only as leader of his own company but also nurturing relationships with clients including top executives from across the country. This make him an ideal choice if Mr Obama wants to improve relations with the business community over the next two years.
There are potential drawbacks to Mr Altman as NEC director. His appointment may upset the Democratic base, which doesn’t like the continuous return by Mr Obama to Clinton-era officials and would like to see more significant change towards the left in its economic policy thinking.
Then there is the question of whether Mr Altman would want the job. Read more
The Bank of England’s forecasts suggest that, were it not for inflation, it should maintain the large stimulus it is providing to the UK economy or take it even further, according to Martin Weale, a member of the monetary policy committee.
The Bank’s projections for the economy point to a substantial amount of slack remaining even at the end of the forecast period in three years, Mr Weale said in a speech on Monday, suggesting that current loose monetary policy or a further boost would be necessary. Read more
Dublin is resisting pressure to accept aid. Discussions have been taking place over the weekend, with European officials making the case for aid, and Irish officials “determined to get out of the financial difficulties [they] are in.”
Little has changed in the fundamentals of the Irish economy. Market pressures were prompted by discussions of the eurozone rescue fund a few weeks ago, in which it seemed bondholders would lose money in the case of default. Debt prices fell, and yields soared. This tempered considerably on Friday, after finance ministers from Europe’s five largest economies suggested the loss on bonds would not be retrospective and the entire thing might be voluntary. Read more