Daily Archives: January 26, 2011

Robin Harding

In its statement today the FOMC removed language about buying assets at a pace of $75bn per month, causing a bit of a stir in the markets.

December 15th:

In addition, the Committee intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.

January 26th:

In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.

There are a few ways that you can read that: Read more

Ralph Atkins

A debt restructuring in Europe “is not in the plan,” Jean-Claude Trichet, European Central Bank president, has just told Bloomberg Television. The ECB would certainly hope that was not the case – it would worry about contagion effects.

But Mr Trichet’s choice of words did not appear to rule out the possibility in every eventuality. Perhaps that was wise: the consensus among financial market economists is that the level of Greece’s public indebtedness makes some kind of Greek rescheduling inevitable in coming months or years.

The ECB’s thinking towards Greece etc has not necessarily changed, however. Read more

Charts accompanying today’s rate-hold decision from Norway include Belgian data in with that of so-called “peripheral” countries – Portugal, Italy, Ireland, Greece and Spain. Yield charts also now include Belgium. (A table showing debt and deficit for PIIGS plus Belgium was included in both sets of slides.)

Norway held rates at 2 per cent as expected, pointing to a fine balance between current low (core) inflation and signs that it may be about to pick up. Read more

Economists at Davos are more optimistic than expected: they think a two-speed economy is sustainable – as long as developing countries move from export-led to consumption-driven model in the longer-term. One suggests a three-speed economy would be a better description. Chris Giles reports.

Andrew Sentance has company. Minutes from the Bank of England show Martin Weale voted for a 25bp rate hike, too – and for several other members the decision was “finely balanced”. The remaining seven voters on the committee might be feeling rather pleased with themselves this morning, after yesterday’s (very bearish) GDP figures. Adam Posen continued to vote for a £50bn expansion of the QE programme.

The threat to inflation expectations seems to have prompted Martin Weale’s decision, rather than inflation itself – which the committee says is temporary:

The continued elevated rate of inflation, which was forecast to persist, posed a significant risk to inflation expectations and hence to the medium-term outlook for inflation. This made more powerful the case which had been building for some time for a gradual rise in Bank Rate.

Those committee members who were tempted to vote for a rate rise appear to have been held back by how the move would be interpreted. Read more

James Politi

President Barack Obama certainly made America’s fiscal health a pillar of his “state of the union” address, calling it a key element of his plans to secure US global competitiveness. “A critical step in winning the future is to make sure we aren’t buried under a mountain of debt,” Mr Obama said. “We have to confront the fact that our government spends more than it takes in.”

Mr Obama did indeed dedicate plenty of space to deficit reduction in his speech – but there were no major surprises in terms of specific proposals for budget cuts, and there was no push for a comprehensive deficit reduction plan along the lines of last year’s Bowles-Simpson debt commission, which proposed cutting politically explosive areas such as social security, Medicare, and individual tax breaks.

Instead, this is what Mr Obama proposed, which fiscal hawks may find underwhelming, but others may argue is perfectly consistent with a strategy designed to continue stimulating the economy now and begin to move in the direction of fiscal retrenchment at a later date. Read more