Daily Archives: April 29, 2011

Robin Harding

I’ve been thinking about what Fed chairman Ben Bernanke said in his press conference about reinvestment of maturing assets from the Fed’s portfolio.

“At some point, presumably early in our exit process, we will – I suspect based on conversations we’ve been having around the FOMC table it’s very likely that an early step would be to stop reinvesting all or a part of the securities which are maturing. But take note that that step, although a relatively modest step, does constitute a policy tightening, because it would be lowering the size of our balance sheet and therefore would be expected to essentially tighten financial conditions.”

If it is the stock of Fed assets that matters, as the Fed believes, there is no doubt that this is literally correct. Reduce the size of the balance sheet and you tighten monetary policy.

But the direct tightening would be incredibly small. I think a much more pertinent reason for Mr Bernanke’s comments is to send a signal that short-term interest rates are going to stay low and discourage the market from pricing in an earlier tightening. Read more

Ralph Atkins

Who can stop him now? Bild, Germany’s mass-market newspaper, has done a volte-face and backed Mario Draghi as the next European Central Bank president. The Italian central bank governor is pictured on page 2 of today’s edition wearing a awkward smile and a Prussian spiked helmet. According to Bild, Draghi is now being backed privately by Angela Merkel (as the FT has written).

Bild’s past opposition to an Italian having control over Germans’ currency was previously seen as a big obstacle to Draghi’s chances (not, of course, that the Berlin government is swayed by such things). Today Bild asks: “But how Italian is Draghi really? At second glance he is rather German, even really Prussian.” Bild praises him for his toughness (his parents both died when he was young), his focus and down-to-earth character. As a result, “Bild awards him honorary German citizenship”.