Monthly Archives: May 2012

Claire Jones

Half price.

Buried in the footnotes of a statement on the latest appointments to the Bank of England’s Court, was this tidbit: Read more

Claire Jones

Astonishingly, it has been more than six years in coming. But the Federal Reserve Board finally got its full complement of seven governors on Wednesday after Jeremy Stein was sworn in.

Mr Stein’s appointment comes shortly after that of Jerome Powell last Friday and follows years of wrangling among senators over who should fill the board’s vacant seats.

Both Mr Stein and Mr Powell will now be able to vote in the Federal Open Market Committee’s policy meetings, the next of which falls on June 19 and 20. That means the Fed board, which tends to back the chairman, will hold the seven of the FOMC’s 12 votes.

The delay in returning the Fed board to its full complement owes much to the nomination process becoming far more partisan in recent years.

It speaks volumes about the degree of partisanship that the two most recent appointees come from different ends of the political spectrum; Mr Stein is a Democrat, Mr Powell a Republican.

Unfortunately for the Fed board, it also means that the central bank could soon find itself short of its full complement for another extended period. Read more

Claire Jones

Mario Draghi says the European Central Bank’s “strong preference” is for Greece to stay in the eurozone. No doubt that’s because of all the Greek bonds on its balance sheet, right?

The value of those bonds is probably the least of the ECB’s worries if Greece exits. The biggie would be handling the contagion.

The ECB does, however, have substantial holdings of Greek government bonds, along with other Greek assets, which in all likelihood would become worthless if Greece does leave.

How big are the holdings? Read more

Claire Jones

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Rate votes Read more

Claire Jones

Fascinated by the Target2 debate, but your obsession hasn’t quite reached the levels where you’re willing to keep a beady eye fixed on all of the seventeen national central banks’ balance sheets?

Help is at hand in the form of this handy graphic and Excel file (last updated yesterday) pulled together by a team at Institute of Empirical Economic Research at the University of Osnabrück in Germany (hat tip to David Marsh at OMFIF for the link): Read more

Ralph Atkins

Mario Draghi flew direct from Wednesday night’s Brussels summit to Rome, where he gave a lecture in honour of Federico Caffè, a celebrated Keynesian economist under whom he studied.

His main message was the need for eurozone politicians to come up with a vision for the union’s future. But he also admitted that his university thesis was sceptical about the idea of a single currency area. Read more

Claire Jones

David Miles, the only one of the Monetary Policy Committee’s nine members to call for more money printing at the past two votes, has given an interesting speech today.

The speech presents the case for doing more based in part on the view that, if the MPC continues to do nothing, or — worse still — tightens policy, then this could destroy the UK economy’s productive capacity and, hence, its ability to grow at the pace seen before the financial crisis.  Read more

Claire Jones

Were the minutes of May’s Monetary Policy Committee meeting, out today, dovish or hawkish?

The vote, which left David Miles as the sole member voting in favour of more money printing for the second month in a row, was more hawkish than most had expected. Read more

Claire Jones

Now that inflation is at a two-year low and the governor can put his best letter-writing pen to one side, should the Bank of England consider doing more to boost the UK economy?

The IMF certainly thinks so.

Today the Fund said the Monetary Policy Committee should print more money and cut the policy rate below 0.5 per cent. This, they argued, would lower yields further out on the curve, which in turn would lower businesses’ borrowing costs.

The Fund also said the Bank should consider buying assets other than government bonds in order to revive the UK’s beleaguered mortgage market and counter tough conditions for businesses. An LTRO-style operation was another option.

Will the Bank follow the IMF’s advice? The MPC might well plump for more QE in the coming months. But, in the short term at least, it is very unlikely to pursue the other measures. Read more

Ralph Atkins

Did the Bundesbank last week try to stop life-saving emergency liquidity assistance for Greece’s banks? That would be a reasonable interpretation of noises from Germany’s central bank — and suggests a dangerous game is being played out in Frankfurt.

The Financial Times reported on Tuesday how at least some Greece banks are being kept alive by about €100bn in “emergency liquidity assistance”, a facility meant to be used only by banks in the direst of need. The massive demand followed the ECB’s decision to exclude four Greek banks from its regular liquidity providing operations because of uncertainty over their future financial strength. Read more

Claire Jones

The Court of the Bank of England on Monday finally succumbed to pressure from politicians and the media to review Threadneedle Street’s performance during the crisis.

About time too.

The Bank is the only one of the Tripartite authorities yet to conduct an investigation into its handling of the turmoil.

But better late than never. Despite the Court’s tardiness, the three reviews announced today should be welcomed. Read more

Claire Jones

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BoE minutes Read more

Adam Posen is stepping up to become president of the Peterson Institute in Washington instead of seeking a second term as an external member of the Bank of Engalnd’s Monetary Policy Committee.

One of the most vocal and the most transparent members of the MPC since its inception, he is quite an act to follow. He is seen as an arch-dove, but that is more due to circumstances than inclination in my view. Read more

Claire Jones


The Reuters headline above has sparked panic this afternoon. Is the panic warranted?  Read more

Claire Jones

Sir Mervyn King. Image by Getty.

Sir Mervyn King. Image by Getty.

Hello and welcome to today’s live blog on the Bank of England’s Inflation Report press conference. The governor is due to begin speaking at 10.30am.

This post should update automatically every few minutes, although it might take longer on mobile devices. All times are UK time.


11.56 This live blog is now closed.

11.49 Here are the key takeaways:

  • Growth is lower, and inflation higher, in the short term, but “the big picture” on the UK economy remains the same. The governor acknowledged, however, that the UK’s productivity problems may be more persistent than previously thought, which is significant given that this would lessen the amount of growth the economy can tolerate without higher inflation.
  • More QE is a possibility given that the central forecasts show inflation edging below 2 per cent two years from now. It would appear that further asset purchases (and more liquidity) are pretty much a certainty if the eurozone crisis worsens.
  • The Bank is not too concerned about the recent appreciation of the pound. Not yet anyway.
  • The governor was unwilling to opine on fiscal policy. Which makes a change.

 Read more

Claire Jones

Back in early 2009, around the time the Bank of England was first firing up the printing presses, one of the oft-stated aims of quantitative easing was for it to produce a sharp increase in broad money, which acts as a guide to the amount of bank lending in the economy.

Broad money growth of 6-8 per cent would have suited the Bank — and the UK economy — nicely. If only.

As the chart above shows, quantitative easing has failed to produce the sort of pick-up that the MPC had hoped for.

There are many reasons for this. One of which, according to former MPC member Charles Goodhart, is the Bank’s practice of paying interest on reserves held in their coffers.

Mr Goodhart today accused the authorities as having “connived” would-be lenders into keeping their cash on deposit at the central bank by paying interest of 0.5 per cent on banks’ reserves.

Mr Goodhart argued that this is discouraging banks from lending. After all, why bother to risk making a loss on a bad loan if you can earn interest by parking your cash at the central bank? Read more

Claire Jones

The ballooning of central banks’ balance sheets in recent years has sparked fears of rampant inflation.

These fears stem from traditional monetary theory, which holds that an increase in central banks’ reserves will eventually lead to a rise in bank lending (and broad money), which in the end will lead to inflation.

This theory of the so-called “money multiplier” assumes monetary policy can influence broad money and inflation through central banks’ control of short-term interest rates and the monetary base of coins, paper money and central bank reserves.

But, as central banks’ largely failed attempts to control inflation through broad money in the 1970s and 1980s suggest, the money multiplier is too slippery to form the basis for policy rules.

Yet, despite its propensity to fluctuate, the money multiplier still matters. As IMF economist Manmohan Singh and his former colleague at the Fund, Peter Stella, say in a VoxEU note published last week, “its impact on how people think about monetary policy cannot be overstated”. Read more

Ralph Atkins

Luc Coene, Belgium’s central bank governor, was outspoken on Greece in his interview with the Financial Times. He also revealed a little more on the use of emergency liquidity assistance across the eurozone.

ELA, provided by national central banks rather than the ECB, is meant to be used only in exceptional circumstances — and requires special approval by the ECB’s governing council. We know its use has been heavy in Greece and Ireland. But as I have noted before, there is still a considerably amount of unexplained ELA about. Read more

Claire Jones

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BoE Inflation Report Read more

Claire Jones

Seldom are statements of the obvious as significant as the Bundesbank’s comments yesterday that Germany might well have to tolerate higher inflation than the rest of the eurozone in the coming years.

Jens Weidmann often cites the EC Treaty’s prohibition of monetary financing as an argument against stepping up the European Central Bank’s purchases of government debt.  It would be hypocritical for the Bundesbank president to argue against what is also implicit in the legislation that governs the ECB: that the governing council sets monetary policy for the eurozone as a whole, not individual member states.

Above-target inflation is the natural result of Germany’s position as the bloc’s strongest economy at a time when the divergences between member states’ fortunes are becoming more and more pronounced.

Still, from a central bank more aware than most of the social and economic carnage that accompanies the debasement of currencies, the Bundesbank’s acceptance that higher inflation is a price that it must pay as part of its commitment to monetary union is to be welcomed. Read more