Monthly Archives: January 2012

Ralph Atkins

The European Central Bank gets criticised for many things these days. On one issue it can offer little by way of defence: the complete lack of women in its top ranks. Gender balance has been “blatantly disregarded” at the euro’s monetary guardian, according to Sharon Bowles, chairwoman of the European Parliament’s economic and monetary affairs committee. She has a point: not one member of the ECB’s six-strong executive board or 23-strong governing council is female.

One possible (sort of) excuse is that female central bankers are a rarity globally. Barely more than 6 per cent of governors globally are women, according to the central bank directoryRead more

Ralph Atkins

One of Mario Draghi’s first acts after becoming European Central Bank president on November 1 was to make clear the limitations of the ECB’s government-bond-buying programme. It would be temporary, limited and aimed purely at restoring the functioning of markets, he said at his first press conference. The ECB would not act as “lender of last resort” to governments, he said – helping reassure sceptical Germans. The impression he gave was that the ECB had serious misgivings about setting the wrong incentives for governments and would wind down the programme as soon as possible.

So how is he doing? Read more

Claire Jones

Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

Bernanke testimony

Fed chairman Ben Bernanke is due to speak on the economic outlook and federal budget situation on Thursday. He’s up in front of the House Committee on the Budget at 10.00 local time (15.00 GMT) on Thursday. Read more

Claire Jones

The impossibility of knowing what would have happened without quantitative easing, ie, the so-called “counterfactual”, means that estimating the impact asset purchases have had on the UK economy is more art than science.

Still, that doesn’t stop the Bank of England trying.

Weeks before announcing another £75bn-worth of asset purchases last October, the Bank published research saying that the first round of QE had meant growth was between 1.5 per cent and 2 per cent higher than it would have otherwise been.

The Bank for International Settlements has had a go too.  Its findings, published in December, found that QE had far less of an effect on gilt yields than the Bank had assumed.

In anticipation of more money printing next month, the Bank on Friday published three new papers which support its view that QE has substantially boosted the UK economy.  Read more

Ralph Atkins

The European Central Bank is maintaining its silence over its Greek bond holdings, but the debates continue behind closed doors. On one point its governing council appears more-or-less united: the ECB cannot voluntarily accept losses on its holdings, on which it spent an estimated €35bn to €40bn. To do so would breach the European Union ban on monetary financing – central bank funding of governments. Germany’s Bundesbank has said as much publicly.

More interesting is what the ECB would do if the Greek government sought to impose losses. Read more

Claire Jones

This from the FT’s US economics editor Robin Harding in Washington and Michael Mackenzie in New York:

The US Federal Reserve predicted that interest rates will stay on hold at least through late 2014 in a dramatic extension to the period for which it expects to keep rates low.

 Read more

Claire Jones

To the chagrin of those at the Eurotower, the IMF is urging the ECB to take a hit on its €40bn in Greek government debt.

The ECB is worried hugely about the principle of it taking a loss, or foregoing profits. But there is also the threat to its own finances: the ECB, like many a central bank, does not have much in the way of a capital buffer.

How would the ECB’s finances look in the event of a Greek default? Well this article, published back in May by the FT’s Frankfurt bureau chief Ralph Atkins, goes some way to answering this question. 

 Read more

Ralph Atkins

Peter Praet. Image by Getty.

Peter Praet. Image by Getty.

Peter Praet, the European Central Bank executive board member who took over responsibility for its economics department earlier this month, chose – probably wisely – a German newspaper for his debut interview.

Talking to the Frankfurter Allgemeine Zeitung, the German-born Belgian sounds tough – but does not actually explicitly rule out much in terms of possible policy actions. To that extent he looks entirely in step with Mario Draghi, the ECB president. Read more

Robin Harding

The new FOMC interest rate forecasts will be released today with the Fed’s Summary of Economic Projections at 2pm. A lot of the commentary suggests that the forecasts of the first rate rise will be heavily clustered in 2014. These are illustrative examples from Credit Suisse: Read more

Ralph Atkins

Beatrice Weder di Mauro, member of Germany’s council of economic experts, has emerged as a possible candidate to join the board of the Swiss National Bank, following the resignation of Philipp Hildebrand .

In Davos, Switzerland, today, she refused to comment on rumours about her future, reports BloombergRead more

Claire Jones

Davos is not as important an event on the calendars of central bankers as the IMF/World Bank meetings or the Bank for International Settlements Annual General Meeting. Neither the Bank of England nor the Federal Reserve will be bothering to send anyone, for instance.

But there are still plenty of Davos men (and one woman) among the senior ranks of the profession. Read more

Claire Jones

External Monetary Policy Committee member David Miles has been re-appointed for another three-year term, meaning he will serve on the MPC until the end of May 2015.

Since joining the committee, Mr Miles has voted with the majority except on two occasions in 2009. In August, he voted for a £75bn increase in the Bank’s quantitative easing programme, while the majority backed a £50bn expansion. In the November, he voted for a £40bn-worth of additional asset purchases, rather than £25bn. Read more

Claire Jones

Money Supply will be running a series of Q&As on some of the more arcane but newsworthy aspects of central banking. Any suggestions for Q&As from our readers are of course welcome.

So the Federal Reserve on Wednesday will publish forecasts which will show us how long it plans to keep rates at more-or-less zero. Hasn’t it done that already?

Sort of. The voting members of the Federal Open Market Committee, which is responsible for setting interest rates, have already committed to keep rates at their current record lows until at least the middle of next year.

The move to produce interest rate forecasts however is a slightly different, slightly bolder step. Read more

Ralph Atkins

And now Finland. Jyrki Katainen, the country’s prime minister, has joined calls for a northern European to be appointed to an upcoming vacancy on the European Central Bank’s six-man executive board.

As reported by the Financial Times, a north-south divide has opened up over the successor to Spain’s José Manuel González-Páramo, whose eight-year term expires at the end of May. Madrid has nominated another Spaniard as his replacement. But Luxembourg and Slovenia have put forward their own candidates, and the Netherlands has also expressed worries about the disproportionate number of southern Europeans on the board. Read more

Ralph Atkins

As Greece’s largest bond holder, with a portfolio worth perhaps €40bn, the European Central Bank is watching closely the tense and protracted negotiations over losses private investors would accept voluntarily as part of a second refinancing deal for the country. Mario Draghi, ECB president, will discuss progress when eurozone finance ministers gather tonight (Monday) in Brussels.

The ECB has two objectives: first, to secure a deal that has a reasonable chance of working and, second, to avoid bearing any burden itself. Neither will be easy. Read more


Ben Bernanke has been very focused on the Fed’s “communications strategy” for several years now, and has patiently pushed the FOMC in his desired direction during a series of detailed discussions. Now it seems that he has reached his destination, and will reveal all (or almost all) in his press conference after the FOMC meeting which begins on Tuesday. Always a fan of explicit inflation targets, the chairman seems finally to have won agreement from colleagues on establishing a formal objective for core inflation of about 2 per cent, though the FOMC will also need to keep Congress happy by talking about its long term unemployment objectives as well. More unconventionally, each member of the FOMC will also publish for the first time their projections for the Fed funds rate extending to 2016.

What is the motivation behind these changes? Mr Bernanke has normally justified such steps in terms of stabilising expectations about the Fed’s genuine intentions, especially on inflation and the forward path for interest rates. At a time when the extension of the balance sheet is causing political difficulties for the Fed, and when inflation expectations could become unhinged by the rapid expansion of the monetary base, the chairman is looking for alternative ways of easing monetary conditions without printing more money. Modern macro-economics suggests that operating on expectations is one of the most powerful tools available to him, though he is using it much more cautiously than many economists would like to see.

 Read more

Robin Harding

I got this one wrong last week by over-interpreting some comments by St Louis Fed president James Bullard. Mea culpa.

Today, the FRB has released two templates to show what its interest rate forecasts will look like when they are actually released next Wednesday. It will take the form of two charts, one showing the actual rate forecasts and one expectations for the year of the first rise, although it should be fairly easy to extract the numerical forecasts quickly from both of them. Read more

Claire Jones

Our week ahead email helps you track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

FOMC meeting

The Federal Open Market Committee meets on Tuesday and Wednesday to set monetary policy for the coming month and a half.

The meeting – to be followed by one of chairman Ben Bernanke’s press conferences – could see the FOMC announce an inflation target. This from the FT’s US economics editor Robin Harding: Read more

Federal Reserve. Getty Images

Getty Images

In 1951, an epic struggle between a US president who stood on the verge of a nuclear war, and a central bank that was seeking to establish its right to set an independent monetary policy, resulted in an improbable victory for the central bank. President Harry Truman, at war in Korea, failed in a brutal attempt to force the Federal Reserve to maintain a 2.5 per cent limit on treasury yields, thus implicitly financing the war effort through monetisation. This victory over fiscal dominance is often seen as the moment when the modern, independent Fed came into existence.

The idea that the central bank should place a cap on the level of bond yields is firmly back on the agenda, at least in the eurozone. This week, Italian prime minister Mario Monti said that he was increasingly optimistic that his country’s bond yields might soon be capped. Although he stopped short of saying that this would be done by the European Central Bank, there really are no other viable candidates to achieve this. Furthermore, many economists are arguing that this is the right policy, since Italy is now following a sustainable budgetary policy which deserves to be rewarded by ECB action in the bond market.

 Read more

Ralph Atkins

The battle hots up. Luxembourg has challenged Spain’s self-proclaimed right to a place in the European Central Bank’s top management team. The Grand Duchy on Friday announced it would nominate Yves Mersch, the country’s central bank governor, for the upcoming vacancy on the ECB’s six-man executive board.

As Money Supply reported earlier this week, Madrid has already nominated Antonio Sáinz de Vicuña, a Spanish ECB veteran who heads its legal department, to replace José Manuel González-Páramo, his compatriot , whose eight-year term on the executive board ends in May.

The contest may prove an unwelcome distraction as eurozone leaders seek to combat the region’s debt crisis. But this could be a battle fought at the highest level. Read more