A round of fairly interesting Fed speeches today:
Narayana Kocherlakota, Minneapolis
In recent months Mr Kocherlakota argued a number of points that made people think he was opposed to QE2: that there may be significant structural employment, that there are dangers to keeping short-term rates very low for a long time, and that the benefits of additional QE may be limited. But I always thought it was a mistake for people to confuse skepticism and debate with outright opposition. Today he says: Read more
Ireland is “likely” to ask for loans running to tens of billions – but only for display purposes. As an EU-IMF technical mission heads to Dublin, the Irish central bank governor told local radio the money would be “shown but not used”.
Having the money physically at hand but not required must surely rank as one of the most market-reassuring options available – assuming, of course, that market volatility is caused by the possibility of default. But what if volatility is caused by uncertainty over what happens in the case of default? Does family friction subside when the patient is pronounced cured but their will is in disarray?
The ECB – which has been medicating the patient for weeks at considerable expense – is keen for a cure, with or without the will being sorted. Read more
Jean-Claude Trichet, ECB president, sometimes refers to the “brotherhood of central bankers”. He rarely criticises, even indirectly, his colleagues elsewhere in the world. At an ECB conference in Frankfurt that has opened this afternoon, Mr Trichet noted recent comments by Ben Bernanke, the US Federal Reserve chairman, describing an inflation rate of “about 2 per cent or a bit below” as consistent with the Fed’s mandate. The developed world’s two largest central banks “could hardly be more closely aligned” on inflation aims, he exclaimed.
But he drew a clear distinction when it came to the use of “non-standard measures” by the world’s central bankers. One view was they could be used like “engaging the four-wheel drive” once the end of the road had been reached. That was a clear reference to “quantitative easing” by the Fed.
In contrast, the ECB used non-standard measures to “remove the major roadblocks in front of us”. Read more
A strengthening currency and lower-than-expected inflation have prompted the Reserve Bank of South Africa to cut its repo rate to 5.5 per cent, effective November 19. “The domestic growth outlook remains subdued and below-trend growth is expected to persist,” said the Bank.
Consumer price inflation fell to 3.2 per cent in September, lower than expected. Prices are forecast to rise at an average 4.3, 4.3 and 4.8 per cent for 2010, 2011 and 2012. The inflation target is 3 to 6 per cent. On capital flows, the Bank cited difficulties arising from the Fed’s stimulus programme: Read more
Today’s public finances figures show net borrowing roughly on track to reach the Budget forecast for the deficit in 2010-11, as the chart shows.
This should be good news as persistent slippage on the public finances has stopped and the very early evidence shows the consolidation is roughly on track.
But because of the dotty way the Treasury and Office for Budget Responsibility have looked at the public finances in the past, this is not good enough. In fact, on plausible assumptions, we need another £5bn of tax rises or spending cuts a year to meet the fiscal mandate of eliminating the current “structural” budget deficit within five years.
Why is good news actually bad in the weird world of government forecasting?
In a nutshell because Read more