I’ve written here before that one possibility under discussion at the Fed is tapering off its $600bn QE2 asset purchases in order to minimise market disruption when they end.
Today, president James Bullard of the St Louis Fed raised the option of tapering so total purchases when the programme stops at the end of June are less than $600bn.
“The natural debate now is whether to complete the program or to taper off to a somewhat lower level of assets”
Mr Bullard told reporters after an interesting speech that he would favour a small reduction in the programme at the next meeting in March to reflect the better economic outlook.
Several market commentators have also put forward a slightly different version of a taper: Read more
The US is little more than $200bn away – or about 2 months – away from reaching its congressionally mandated national debt limit of $14,300bn.
The need to increase it to avoid a potentially disastrous US default is the next fiscal battleground in Washington, after the lawmakers stop squabbling over a government shutdown.
Republicans want to use the opportunity to push for more spending cuts, while Democrats say this is not the place to negotiate.
On Thursday, Moody’s Investors Service offered its analysis of the likelihood that a major crisis will ensue, threatening America’s triple-A credit rating much earlier than even the most ardent fiscal hawks would imagine. Read more
Only twice since the Bank gained independence has a sitting governor been outvoted. One was in August 2005, when the committee voted for a cut while the governor preferred a hold. In the other, two years later, the governor voted for a rate rise, and was outvoted to keep rates on hold. Might we be about to see a third case?
For the prosecution, three pieces of evidence. The first is the voting pattern. Never since the Bank gained independence has there been such a long period in which members of the committee have voted against the governor. Typically, there’s the odd vote for a change, while the governor and a majority prefer to hold. Demand for change then either grows – taking the governor with it – or fizzles out. But dissent has now lasted for nine consecutive Bank of England meetings – the longest on record. (The previous record was seven.)
Next, an insightful point from Alan Clarke of BNP Paribas. Read more
Russia’s finance minister has indicated a preference for a hike in interest rates when the board meets on Friday. Governments are often pro-growth, with central banks taking the unpopular – and sometimes anti-growth – decisions needed to fight inflation. Not in this case. “The central bank is independent, but I think it is the time to take additional measures,” Russia’s finance minister Alexei Kudrin told the BBC, Reuters news wire reports.
Bank Rossii surprised markets (and us) in January by following bullish hints with a raise in reserve requirements instead of a rate rise. Prices have risen 2.9 per cent in the first six weeks of 2011: at that rate, annual inflation for 2011 would be 25 per cent. Read more
Waiting for a German consumer boom is like… contributions welcome for the most appropriate metaphor. Whatever the comparison, it is not happening yet. Disappointingly for those hoping for a re-balancing, details just released of last week’s fourth quarter gross domestic product data show German growth continued to be driven mainly by exports.
The balance between exports and imports contributed 0.7 percentage points to growth in the fourth quarter. This was offset by a sharp, weather-related fall in construction and a run-down in stocks.
Despite steadily falling unemployment, low interest rates and soaring economic confidence in Europe’s largest economy, consumer spending rose by a measly 0.2 per cent compared with the previous three months, down from 0.5 per cent in the third quarter. Read more
Guy Quaden, Belgium’s central bank governor, announced last night that he will step down on March 31. “It is time the government can provide stable leadership to the Bank in preparation for the transfer of the prudential supervision of banks,” he said. A likely successor is the vice governor, Luc Coene.
Whether the government is able to secure stability at the Bank is unclear. Mr Quaden should have retired last Autumn but problems forming a government in Belgium required him to stay in his post. There hasn’t been much improvement since then. Attempts to form a coalition after the June election failed in September. Chief political mediator Johan Vande Lanotte stepped down in January. Some agreement has been made on austerity measures after markets started to fret about Belgian debt, pushing up the cost of debt for the tiny nation by almost a third. Politically, the country is still in crisis, recently passing 249 days – a record – without a government. Read more