Daily Archives: March 1, 2011

Robin Harding

After a five month recruitment process, the San Francisco Fed has appointed a president from within, its research director John Williams.

The appointment of another highly-respected economist (#329 on the RePEc list) as a regional Fed president is the latest in a trend after Narayana Kocherlakota (#262) in Minneapolis, James Bullard (#738) in St Louis, Charles Evans (#205) in Chicago and Eric Rosengren (#663) in Boston.*

It reflects the evolution of the regional Feds: as the banking industry consolidates and payments systems centralise they are becoming less banks and more economic research centres. The role of the regional Fed president, increasingly, is defined by the ability to hold your own and contribute to debate on the FOMC. Read more

James Politi

In Ben Bernanke’s testimony before the Senate banking committee today, there was plenty of talk about US fiscal and budgetary policy.

It’s the hot topic on Capitol Hill, with Congress moving this week towards a deal to cut spending by $4bn and avert a government shutdown – at least for two weeks.

Needless to say, in the question-and-answer session, lawmakers from both parties were desperately trying to get the Federal Reserve chairman’s approval for their positions.

Republicans are advocating for aggressive cuts in discretionary spending, while Democrats, in the words of Harry Reid, the Senate majority leader, want to apply a ”scalpel” rather than a “meat axe” to the US budget. Read more

Two interesting tidbits on inflation today.

First, at the Treasury Select Committee this morning, Mervyn King, Bank governor said he had essentially defeated Britain’s inflation problem.

“The projections that we published in the inflation report a couple of weeks ago have the characteristic that the inflationary pressures are pretty much back to target by around the middle of this year.”

To show this requires a bit of simple statistical manipulation of the Bank’s latest inflation forecasts and the application of the most simple seasonal adjustment techniques to the quarterly inflation data to get the following chart. It is very similar to one published by David Miles, MPC member,  in his speech last week (when I was on holiday) which uses more sophisticated seasonal adjustment.

The idea of the chart is rather neat because Read more

Canada is less positive on the world economy than at its last meeting as it continues to hold rates. “The global economic recovery is proceeding broadly in line with the Bank’s projection,” the statement said. Last month, that same recovery had been proceeding “at a somewhat faster pace than the Bank had anticipated”.

It’s not all gloomy, though. Canada’s recovery is “proceeding slightly faster than expected” this month. Still, expect interest rates to remain on hold for some time yet: It remains the case that “any further reduction in monetary policy stimulus would need to be carefully considered.”

Spanish banks could be €50bn short of new capital requirements, says Moody’s, revising its previous estimate of €17bn based on old requirements. This is roughly 5 per cent of Spanish GDP and considerably higher than the Spanish government’s estimate of €20bn.

Overall savings banks’ exposure to the real estate sector is €217bn, by Bank of Spain data. Of that, €100bn, or nearly half, is considered “problematic”. €28bn are under surveillance and considered risky; a further €28bn are more than 90 days past due; and €44bn are foreclosed. Problematic indeed. The most troubling sentence from the Moody’s report is that just 40 per cent of the €217bn loan exposure is collateralised by finished, completed housing:

 Read more

Loan growth is slowing in Turkey, backing up claims by Turkey’s central bank governor that its unorthodox monetary policy is working.

Data from Turkey’s banking watchdog, BDDK, showed total banking sector loans rose 2.8 per cent to February 18. This equates to about 21 per cent over a year, well within the bank’s target 20-25 per cent loan growth. It also represents a significant drop from the annual rate of 35.6 per cent on the year to February 18. The actual annual volume of banking sector loans to February 18 was 550.3bn lira. Read more

Is the Bank of England maintaining its independence from government? This question has just come from the government – one of the more interesting questions emanating from a Treasury select committee, currently under way.

The questioner took issue with a comment from George Osborne’s letter of reply to Mervyn King’s inflation explanation in February. In the letter, the chancellor said: “For its part, the government’s commitment to delivering its fiscal consolidation plan continues to provide the MPC with the space it needs to target low inflation.”

Mr King was quick to scotch the implication of fiscal-monetary policy co-ordination.   “We’ve certainly discussed the case for and against fiscal consolidation and I’ve explained the stance the MPC has taken on monetary policy,” said the governor, but: “There has never been any attempt on any occasion to influence the MPC on what decisions it should take.” Read more

The combination of a rapidly growing economy, and a surge in oil prices, has raised questions about the strength of the doves’ hand at the Fed. Previously in firm control, the doves had until yesterday been silent about the recent mixture of strong GDP growth and rising headline inflation. Was the case for exceptionally easy monetary policy beginning to fray at the edges? Not in the mind of New York Fed President Bill Dudley, who is among the most eloquent spokespersons for the dovish standpoint.

In an important speech, Bill Dudley confirmed that the US economy is now growing at an accelerating rate, but said that this reflected the success of Fed policy, rather than providing any case for changing it. He conceded that the structural unemployment rate may have risen to between 6 and 7 per cent, but argued that much of this increase may be temporary. And, in any event, he suggested that employment could rise by 300,000 per month for two years before the economy would run out of spare capacity. On the commodity price surge, he said that this would not be a sufficient reason for tightening monetary policy, unless it started to increase inflation expectations. Assuming this does not happen, Bill Dudley will remain an influential dove for a long time. And this is important, because his recent thinking has been very close to that of US Federal Reserve chairman Ben Bernanke himself.

There have been two significant challenges to the Fed’s dominant dovish tendency in recent weeks – the big drop in unemployment, and the rise in commodity prices. Bill Dudley considers both factors carefully, but concludes that neither is powerful enough to change his basic viewpoint on the economy.

 Read more

Business loan write-offs are at an all-time high, according to data from the Bank of England. Sterling write-offs to non-financial corporations – which just means businesses that aren’t banks – reached almost £2.5bn in the last quarter of 2010, higher than the previous record of £2.4bn in Q409 (at least as far back as 1993). This is about half a per cent of all loans to NFCs.

NFC write-offs make up half of all sterling write-offs, exceeding credit card write-offs, which also rose significantly q-o-q. Total write-offs are slightly below the Q409 record, mainly because write-offs are lower for individuals’ loans that are neither credit cards nor secured on dwellings. Read more

Robin Harding

Core PCE inflation came in at +0.8% again year-on-year in January so time for the inflation chart again:

 Read more