As the San Francisco Fed is still operating without a president – something that is becoming increasingly hard to explain given that Janet Yellen was first nominated to the Board last April and left San Francisco at the start of October 2010 – its monthly FedViews publication is filling a strange role as a sort of semi-official comment from the institution.
This month it is written by associate research director Glenn Rudebusch, and combines an optimistic growth outlook of 4 per cent in 2011 and 4.5 per cent in 2012, with a subdued inflation outlook that has core and headline converging at around 1 per cent by the end of 2012.
Rising inflation expectations might push Colombia’s central bank to raise rates from their record low. Minutes released today said that short-term expectations were in the upper half of their target range, while long-term expectations (5 to 10 years) “surpassed the ceiling of that range”. The bullish sentiment was tempered, however, by uncertainty:
The points [the members of the Board] stressed as being fundamental for an eventual hike in the intervention interest rate are, among others, growing upward inflation expectations above the target range, the important momentum in internal demand, high asset prices, and the accelerated build-up in lending.On the other hand, low core inflation levels and the recent relative stability in prices for non-tradable goods, excluding food and regulated items, the possible temporary nature of the increase in food prices, the unstable situation with respect to the sovereign debt of several European countries, and the lack of certainty surrounding the forecasts for inflation and growth in the months ahead were underscored as factors in favor of keeping the rate at its present level.
Disagreement seems to be a public affair at Poland’s central bank. Where other rate-setters cloak their positions or votes in secrecy, Poland’s 10-strong rate-setting council give their diverging views quite openly. This may well be a smart move.
Today, two opposing views were added to an almost exhaustive list of policymakers’ views. Anna Zielinska-Glebocka gave possibly the most hawkish assessment to date, warning of a race against time to beat rising core inflation. Asked by Reuters whether another rate hike may come as early as the MPC’s next sitting on March 1-2, Ms Zielinska-Glebocka said: “I wouldn’t want to say what we will do in March … It seems there is a need to tighten monetary policy. The depth of tightening will be decided by many factors.” Her bullish sentiments follow comments from Jerzy Hausner and Jan Winiecki, both concerned about inflation and eyeing further rate rises.
But balancing that view was
Much more European cooperation is needed when policing banks – but not necessarily when it comes to national fiscal policies, according to Lorenzo Bini Smaghi, European Central Bank executive board member.
Speaking in Halle, Germany, Mr Bini Smaghi identified a big hole in current efforts to rebuild Europe’s monetary union. Steps taken so far to strengthen pan-European bank supervision have left room for national discretion and apply mainly to Europe’s largest banks, he pointed out. As he went on: ”It’s the smaller and local banks that have proved to be much more risky and burdensome for taxpayers.”
His comments reflected fears at the ECB that national regulators are sometimes reluctant to impose restrictions on local banks. “These issues have not really caught the attention of the political authorities; no concrete proposals to address this issue have been made. But it’s an important and urgent matter,” Mr Bini Smaghi said. But, in comments which will boost his reputation for free-thinking, the rate-setter was sceptical about whether greater fiscal union was really the answer to the eurozone’s problems.
It’s official: there will be no women on the ECB’s 23-member governing council when Gertrude Tumpell-Gugerell’s term ends in June. Meet Peter Praet, right, the Belgian central bank director who has just been chosen unanimously by EU finance ministers to take the place of Ms TG on the Executive Board.
The other main contender for the seat at the ECB’s top table was Slovak Elena Kohutikova, whose sex many pundits thought would help her beat Mr Praet. Politics trumped, however: her chances were dampened by Slovakia’s refusal to back the €110bn bail-out for Greece, officials said last week. Formal confirmation will take place tomorrow. The appointment of a European “northerner” might be seen to increase the chances of a “southerner” (such as Mario Draghi) for the ECB’s top job – especially given Axel Weber’s exit.
In exactly a week, Hungary’s MPC will meet for the final time before four of the seven policymakers retire. New legislation, which has yet to be approved by parliament, is likely to see the central bank governor stripped of his right to choose who fills two of those four seats. A deputy governor today urged parliament to respect the central bank’s independence and reconsider the legislation.
“The credibility of Hungarian economic and monetary policy would increase if political forces made clear their commitment to central bank independence (and) price stability,” Julia Kiraly said, according to Reuters news wire. “Predictable economic policy can lead to lower risk and lower funding costs, which will be felt by both the country as a whole and citizens servicing their debt,” she said.
Analysts worry that government influence at the Bank could lead to a pro-growth agenda, with too little attention given to fighting inflation. Hungary has been downgraded by all three main issuers since November of last year with government debt issues now rated BBB-/Baa3.
After last week’s confusion, Axel Weber has now shed some light on just why he is quitting early as Bundesbank president and withdrawing from the race to become European Central Bank president.
The main reason, he told Der Spiegel news magazine, was his hard line stance, for instance on ECB purchases of eurozone government bonds. “These positions might not have always been helpful for my acceptance in some governments,” he said. Moreover, the ECB president had a special role. “If he advocates a minority opinion on essential questions, the credibility of his office suffers.”
As an explanation, it sounds plausible. Another way of putting is that Mr Weber saw his appointment as president would have split the ECB’s governing council, with a potentially catastrophic impact on its effectiveness.
Bundesbank president Axel Weber said a lack of political acceptance in the eurozone for his hawkish monetary views drove his abrupt decision to step aside as Bundesbank president and to exit the race for European Central Bank presidency. Mr Weber will step aside in April, a year before his term would have expired.
Political reactions to his “clear positions” on important ECB decisions, such the purchase of government bonds, had added to his reluctance to follow Mr Trichet, Mr Weber told Der Spiegel at the weekend. “These positions might not have always been helpful for my acceptance in some governments,” he said in the first public explanation of his unexpected decision, which has thrown the race for the ECB presidency wide open and diminished the German government’s chances of pushing through their own candidate. (Jens Weidmann, Ms Merkel’s economic adviser, is widely seen as the frontrunner.)