Long gone is the era when markets were left guessing about what the federal funds target actually was. Now we have a Federal Reserve which has not only told us about their current policy rate, but what they expect the rate to be two years from now.
At the forefront of these efforts for altogether more transparent monetary policy have been the select group of central banks that publish a projected path for interest rates.
Advocates say the projections give central banks greater influence over markets’ expectations, which in turn enhances the transmission of monetary policy. The case for projections, then, is similar to that for conditional commitments such as the Fed’s.
But do they actually work?
A report commissioned by Sweden’s parliament into the performance of the Riksbank – among this select group (which also includes the Czech National Bank, Norges Bank and the Reserve Bank of New Zealand) – suggests not. At least not past a year ahead. Read more
Were Germany’s second quarter growth figures “too bad to be true”? GDP rose by a mere 0.1 per cent compared with the previous quarter, the country’s statistical office has just confirmed. When the first estimates were released in August, the figures had a large shock factor and contributed to the escalating eurozone gloom.
But details suggest the country’s reaction to the Japanese earthquake and nuclear crisis in March explained much of the slowdown. Read more
Close watchers of the Bank of England’s Monetary Policy Committee listened carefully to Martin Weale’s speech last week and thought he sounded more dovish than before.
He ruled out an immediate vote for UK QE2:
“I do not think our August forecast or the more recent market movements since then as yet make a case for such a policy [QE2]“.
But in its August inflation report, the MPC has taken an enormous punt on data revisions which, if wrong, is likely to make a resumption of QE seem much more attractive to the Committee – possibly as soon as October.
History suggests that it is more likely than not the Bank is wrong about its revisions guess and QE could be much closer than investors currently think. Read more
I wrote one of the more aggressive reports on Ben Bernanke’s speech in Jackson Hole, saying he “hinted” that the Fed will do more to support the US economy, but qualifying that by noting that he avoided the emphatic language of his 2010 speech and offered no discussion of the Fed’s easing options.
Quite a number of analysts found no such hint in the text and it would have been better – although not very practical for a Saturday newspaper – to say that he showed an easing bias.
What is interesting now is to go back and read the speech in light of subsequent FOMC-speak and the minutes of the August meeting. Read more