In the last few hours I’ve had ten separate emails from the White House announcing that various senators, Congresspeople, governors and mayors are backing its tax deal. I’ve never seen anything like it. They must be seriously worried about whether it will pass (or at least the political backlash from their own side).
Sorry, make that eleven. Read more
Interest rates could rise in the first quarter of next year, Bank Rossii chairman Sergei Ignatiev has indicated, saying he is not afraid of a strengthening rouble. “Inflation is beginning to worry us,” Bloomberg reports him saying. Annual price growth is set to reach 8.4 by year end, he estimated, having hit 8.1 per cent in November.
A weaker rouble in recent months has not helped, the chairman observed. A weaker rouble will make imports more expensive, driving up the price of imported goods. Today, however, the rouble closed at its strongest for two months against the euro-dollar basket, after Mr Ignatiev said the regulator wasn’t “afraid” of a stronger currency and would use interest rates to curb inflation. Rising interest rates make the rouble a more attractive purchase for investors. Read more
Iceland’s central bank is still cutting rates – and further cuts lie ahead if inflation continues to fall. Sedlabanki said: “The appreciation of the króna, declining inflation expectations, and the slack in the economy continue to contribute to low and stable inflation… there may yet be some scope for further monetary easing.” November’s year-on-year inflation fell to 2.6 per cent – close to the 2.5 per cent target – down from 10.7 per cent in March.
With inflation expected to fall further, Iceland’s central bank will be wanting to head off any prospect of deflation. Lower rates will encourage debt-fuelled spending, which should drive prices up. The rate cuts – some 50bp, some 1pp, some 1.5pp – will also narrow the interest rate corridor to 2pp. This should help to reduce volatility in short-term interest rates. New rates are: Read more
Giving evidence to the Treasury Select Committee this morning, George Osborne claimed the UK economy was back on track.
He added that it was pretty clear to him that the previous Labour government had overstated trend growth for much of its time in office and there had been a big “boom” in the economy for much of the decade.
Warming to this theme, the chancellor referred the Committee to his favourite chart of the June Budget, which shows what the output gap would have looked like if a more modest figure – and what Mr Osborne said was “more realistic” estimate for trend growth – had been assumed by the previous government. Read more
$1,000bn: that’s the estimated fiscal stimulus if current US tax deal discussions come to fruition. Economists have upped their 2011 growth forecasts by 50-70bp on the news; traders have brought forward their estimates of a fed funds raise as yields rose significantly. The policy couldn’t be more different from yesterday’s austerity measures in Ireland.
US citizens at both ends of the pay spectrum would be better off under the deal, paying less tax and therefore having more to spend. Under the current deal – which has some way to go before it is passed – the 2 per cent employee payroll tax cut would be kept, saving some families about $2,000 and costing about $200bn. The main, $800bn part of the deal would extend Bush-era tax cuts across all income groups – including the very wealthy, who are more likely to save the additional income.
Robin writes: Read more