Bloomberg have a nice story today about the possibility of an explicit Fed inflation target. I’d also noted the uptick in speeches on the subject recently such as those by Dennis Lockhart and Charles Plosser.
The way I’ve understood it since taking on this job is that a large majority of the FOMC, led by Ben Bernanke, would like to adopt an explicit inflation objective. It was heavily discussed last autumn as a way to anchor inflation expectations when the danger was deflation. Those discussions have continued, and with press conferences out of the way, an inflation objective is the obvious subject for the Fed’s working group on communications.
It appears from the chart that UK inflation held steady in May, although at much too high a level.
Unfortunately, that is a mis-reading of the data since the rise in CPI inflation in April to 4.5 per cent was a statistical blip caused by the timing of Easter. A constant rate indicates another underlying increase in the rate of growth of the price level.
How worried should monetary policy makers be? The interesting fact, noted by Simon Hayes of Barclays Capital this morning is that Monetary Policy Makers, regardless of whether they are hawks or doves, say not very worried at all.
Jean-Claude Trichet spoke at the LSE on Monday afternoon.
Much of what he said was a combination of a couple of speeches he gave last week, the central message being that the eurozone needs to monitor member countries’ fiscal and macroeconomic policies and competitiveness more closely, and that there needs to be a sharper stick with which to beat countries that fail to behave themselves.
The New York Fed has announced its schedule for the final purchases under the $600bn programme that began last November. After that, the only purchases will be reinvestments of maturing MBS, which are now down to $12bn a month.
The European Central Bank has kept its main interest rate unchanged but left the door open for a further rise in July.
“I see no reason for introducing changes to the way we have conducted monetary policy in the past 12 years.” Thus states Mario Draghi early on in lengthy written evidence submitted to the European Parliament in support of his nomination as the next European Central Bank president.
As such, Mr Draghi confirms that central bankers will never make great journalists. It would have been rash for him to suggest anything other than continuity at the top of the ECB. The uncertain economic outlooks, “warrants an element of gradualism in changing standard and non-standard monetary policy,” he says.
His cautious style suggests Mr Draghi is still keen to win over hearts and minds, especially in Germany, where nervousness remains high about handing over responsibility for their currency to a southern European.
Sterling has been knocked to a one month low against the euro on Wednesday after investors interpreted comments by Moody’s, the credit ratings agency, as a warning that Britain could lose its AAA rating.
The news and market reaction raise two questions. Did Moody’s issue a warning on the UK’s sovereign credit rating? If not, why did investors react as if it did?
The answers have important lessons for communications, whether they are from ratings agencies, central banks or international organisations
More trouble for the Bank of England’s new macro-prudential baby, the interim Financial Policy Committee.
Yesterday, the International Monetary Fund warned the Bank not to lose sight of nitty-gritty supervision of banks in its infatuation with system-wide macroprudential tools. It urged the Bank to set “realistic goals” for the FPC.
Today, the Treasury select committee held its nose as it (just) approved one of the final two external members of the FPC and regarded the other as not sufficiently independent.
Its judgment on Michael Cohrs, former head of global banking at Deutsche Bank, members of Parliament fretted that he seemed unwilling to speak about his new role in public
We note the apparent reticence of Mr Cohrs about speaking out in speeches and statements about his work while on the FPC, and we would ask him to reconsider.
Cometh the seeming slowdown in the economy, cometh the high pressure Ben Bernanke speech to tell us what the Fed thinks about it. The Fed chairman will speak on the US Economic Outlook at a conference in Atlanta, Georgia, at 3.45pm ET tomorrow.
The speech is actually long-planned – although the economic news has made it a lot more significant – and speeches on this topic follow a set pattern. Mr Bernanke is likely to dicuss the growth outlook, the inflation outlook and then the policy consequences.
Peter Diamond’s withdrawal from the Fed nomination process after fourteen months means that the Obama administration now needs to come up with two new candidates for the Board of Governors. It will not be easy.
You could characterise the two gaps as the ‘economist’ governor and the ‘financial markets’ governor.