I agree with my colleagues at FT Alphaville that “counterfactuals are inherently tricky” but I don’t think they quite get to the heart of the case that you could mount against the new estimates of the effects of Fed stimulus programmes that Janet Yellen cited in her speech on Saturday.
Those estimates are that inflation is one percentage point higher than it would be had the Fed made no asset purchases and employment will be 3m higher than it would have been in 2012.
It’s important to note that David Reifschneider, senior associate director of the FRB’s department of research and statistics, and John Williams, once of that parish and now research director of the San Francisco Fed, are co-authors of the paper. That means this is as close to an official ‘Fed view’ as we are ever likely to get on the effectiveness of QE. Read more
Ireland’s fate should be a cautionary tale to those pushing Portugal towards a bail-out. Ireland’s bail-out – arguably not needed – didn’t work.
Government bond yields – a measure of market stress – rose above 8 per cent, and Dublin found itself inundated with offers of cash. This unlimited funding should have been enough to reassure markets, but it was not, proving a cash shortage was not the problem. Politicians ignored this, and the offers became more insistent. Ireland accepted a loan, but markets were unimpressed and yields stayed above 8 per cent. A month later, yields returned above pre-bail-out levels of about 8.4 per cent. Now they are nearer 9 per cent. The Irish bail-out was misdirected, targeting the symptom and not the cause. Bond markets were worried about bondholder rights, not a cash crunch. Making cash available while remaining vague on bondholder rights was a mistake. Read more
Inflationary threats have become a “general feature” among the world’s emerging economies, Jean-Claude Trichet, ECB president warned after a meeting of the world’s leading central bankers in Basel, Switzerland.
The comments indicate that Mr Trichet remains upbeat about global economic prospects but hinted at concerns about the policy response to rising inflation in some countries. “I see the inflationary threats present as some kind of general feature in the emerging world,” he said. Read more
Norway’s surprise jump in headline inflation – from 1.9 to 2.8 per cent y-o-y – has some pundits asking whether the central bank will raise rates early.
Norges Bank has previously signalled it intends to keep rates on hold at 2 per cent until the middle of the year. Now a 19.9 per cent monthly jump in electricity prices have pushed headline cpi over the 2.5 per cent target, and some journalists are debating an earlier rate rise, perhaps as soon as March. Read more
The Thai baht has fallen very sharply this morning, as has the Indonesian rupiah. Equities have fallen, too – nearly 5 per cent in Indonesia. The baht sank 1.6 per cent against the dollar, the biggest one-day decline since June 2008.
A persistent rise in commodities prices, and too-slow rate-raising may be to blame. Analysts point to a firm dollar since Friday and concerns in Indonesia and Thailand that their central banks are slow to counter inflation by hiking rates. Indonesia, in particular, hasn’t increased its benchmark rate from a record low of 6.5 per cent since the financial crisis. Read more