Today’s FOMC minutes suggest that the detailed record of meetings will still be interesting even after the Fed chairman has given a press conference and the best bit – the economic forecasts – have been released.
The minutes of the April meeting are notable for a detailed discussion of exit strategy. Much of this is familiar: it reaffirms the rough ordering of: (1) Stop reinvestments; (2) Change forward guidance; (3) Drain reserves; (4) Raise short-term rates; (5) Sell assets. Read more
In the past week, the Bank of England’s new forecasts marked the moment it judged the damage from the recession was permanent. This showed up in quite an amazing chart.
I noted that Britain’s fiscal authorities had not yet given a forecast with a similar profile and “continue to predict growth of roughly 3 per cent a year as far as their eyes can see (and further)”.
The smart people at the OBR were quick to point out that I was wrong. As this chart shows, the fiscal watchdogs are more pessimistic about the level of output than the Bank. This is not because the Bank has higher forecasts for growth (its are lower), but because the Bank assumes the past official data will be revised higher while the OBR does not. Note how the gap between the OBR and Bank lines are widest apart now.
With both the Bank and the OBR having a similar profile for future UK economic output, the big question is what level of output can the UK economy produce without generating inflation. What is the supply capacity of the UK economy that accompanies these forecasts? Read more
Will the European Central Bank change when Mario Draghi becomes its president in November? In comments today, Lorenzo Bini Smaghi, ECB executive board member, suggested there would be no revolution. “The agenda won’t be much different from that of the last few months,” he told a conference in Milan.
Certainly, Mr Draghi has so far shown no signs of wanting to rock the boat. Wisely, the Italian central bank governor kept a low profile during the drawn-out race to take over from Jean-Claude Trichet, whose non-renewable eight-year mandate expires on October 31. We have not, for instance, had public comments from him on a possible Greek debt restructuring. Read more