Monthly Archives: September 2012

Robin Harding

The favourite counterparty of the US Federal Reserve is everybody’s favourite vampire squid: Goldman Sachs. Today saw the release of transaction level data for the Fed’s Treasury dealings in the third quarter of 2010 – including the names of all of its counterparties. This is who got the business:

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Claire Jones

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

ECB vote

The European Central Bank’s governing council decamps to Ljubljana next week for its October policy vote. This from the FT’s Frankfurt bureau chief Michael Steen on what to expect: Read more

Michael Steen

The dust has yet to settle on the Bundesbank’s fight with the ECB over bond-buying, but this has not stopped Germany’s central bank from taking on another heavyweight global financial institution: the International Monetary Fund.

BuBa’s monthly report, published on Monday, includes a whole chapter entitled: “The IMF in a changed global environment.” It becomes clear fairly quickly that eyebrows are being raised in Frankfurt at some elements of the IMF’s stance in the eurozone sovereign debt crisis, where the Fund has taken on its own lending and acted as a member of the “troika” of IMF, ECB and European Commission officials advising on bailouts.

“By taking on excessive risks, the IMF would gradually transform from a liquidity-providing mechanism into a lending institution,” the bank says on the first page of its 15-page discussion. “Such a transformation would neither accord with the legal and institutional provisions of the IMF agreement, nor with the fund’s financing mechanism or its risk control functions.” Read more

Michael Steen

There is, in these troubled days for the eurozone, arguably a hint of Ozymandias-in-reverse about the enormous new €1bn headquarters that the ECB is building for itself on the eastern edge of Frankfurt.

The risk is not so much that a traveller will one day find “two vast and trunkless legs of stone” in a desert, but rather a vast and shiny glass-and-steel tower block near the river Main with no one in it. At least that might be the suspicion of those who think the euro may not last long enough to see the moving vans arrive from the centre of town in 2014, where the ECB now has its offices. Read more

Claire Jones

The Bank of Japan’s announcement today of an additional Y10tn ($126bn) of quantitative easing caught markets off guard. Many had expected action next month, when the central bank will release its latest projections for growth and inflation.

But for seasoned Japan watchers the timing of the decision will come as little surprise. The BoJ may have been in the QE game for far longer than any of the other major central banks. But in recent years it has been a case of where the Fed leads, the BoJ follows. Or, more aptly, when the Fed acts, the BoJ retaliates. Read more

Claire Jones

The Federal Reserve’s decision last week to expand its balance sheet by a potentially unlimited amount until the labour market shows some “substantial” signs of improvement has been described as “stunningly aggressive” and “a dramatic step forward“.

But Charles Evans, president for the Chicago Federal Reserve, is not satisfied. The Federal Open Market Committee’s arch-dove wants more.

Mr Evans on Tuesday again called for the rest of the FOMC to explicitly target an unemployment rate of 7 per cent and medium-term inflation of 3 per cent before ending its easing policy – so long as inflation expectations remain reasonably well anchored.

Will the bulk of the FOMC’s voters back such a so-called ‘Evans rule’? For the time being, no.

But, for the most part, Mr Evans has already got what he wants. Read more

Claire Jones

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

BoE minutes

The Bank of England’s latest Monetary Policy Committee meeting minutes are out on Wednesday morning at 9.30am UK time (8.30am GMT).

Now that Adam Posen has stepped down from the committee, the most likely candidate for dissent is David Miles. However, most think Mr Miles will have resisted calling for further easing at this month’s meeting and that all of the MPC will have backed the decision to hold policy firm. This from Nomura’s Philip Rush: Read more

Claire Jones

Robin has got what he asked for. The Federal Reserve today made a dramatic step forward in its attempt to revive the US economy and for the first time announced that further asset purchases will be open-ended, meaning that the central bank won’t stop buying until economic conditions improve.

During previous rounds of QE, the Fed has committed only to buy a fixed amount of assets. Today, it pledged to expand its balance sheet by a potentially unlimited amount until the outlook for the labour market improves “substantially”. Read more

Robin Harding

The FOMC meeting now under way – concluding with a statement at lunchtime tomorrow, Thursday September 13, followed by a Ben Bernanke press conference – could well produce the most important Fed move since the 2008-09 crisis. Here is what I expect.

Will the Fed launch QE3?

There is an excellent chance that the Fed will both extend its forecast of low interest rates into 2015 and launch a new round of asset purchases.

Fed communications point emphatically in that direction. Read more

Claire Jones

Last Friday the FT’s economics editor Chris Giles took issue with the use of “the Niesr chart”, so-called because of its frequent publication by the National Institute of Economic and Social Research, to show what’s happening with the UK economy.

Chris argued that the Niesr chart, which shows that — in GDP terms — the current recession is the longest and the deepest since the 1930s, “may well be showing us irrelevant nonsense”.

Though output is now almost 4 per cent below where it was in 2008, the latest employment figures – out today – show that there are more jobs around today than before the crisis began. And this, Chris argued, meant that neither the Niesr chart nor the employment data should be used alone to illustrate what has happened to the UK economy in recent years.

External Monetary Policy Committee member Ben Broadbent has some sympathy with this view. In a speech today, Mr Broadbent argued that, because of the disparity between what the output figures and the jobs data tell us, policy makers “may be less confident than usual” about whether the origins of a change in the GDP result from a supply shock (which monetary policy can do little about) or weak demand (which monetary policy is supposed to address). Read more

Claire Jones

Think you could do a better job than Sir Mervyn in setting interest rates and staving off financial crises? Well here’s your chance.

George Osborne today began his search for a new Bank of England governor and the following ad is due to appear in The Economist on Friday: Read more

Claire Jones

Ian McCafferty, who has replaced Adam Posen on the Bank of England’s Monetary Policy Committee, appeared before the House of Commons’ Treasury Select Committee this morning.

The hearing provided some interesting insights on McCafferty’s opinions on fiscal, as well as monetary, policy. Read more

Claire Jones

Mirror, mirror on the wall, who’s the biggest quantitative easer of all? Brazil has long accused governments in the developed world of using loose monetary policy to pump up their economies and get a competitive edge. But it may be time for Brazil to reflect on its own actions over the past five years.

During that time, Brazil has received huge capital inflows, pushing its foreign reserves from about $80bn at the end of 2006 to about $380bn today (see chart below). The central bank says it has “sterilised” those potentially expansionary and inflationary inflows by selling government bonds – standard practice at central banks around the world.

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Michael Steen

Watching the panel discussion on BBC’s Newsnight programme after the ECB’s announcement of its Outright Monetary Transactions policy last Thursday, a long-running criticism of central bankers was brought powerfully home even before any of the guests had opened their mouths.

For here was an all-woman group of qualified observers discussing decisions made in an environment so male-dominated it might as well be one of London’s traditional gentlemen’s clubs in St James.  The ECB has no women on its executive board and none of the 17 heads of eurozone central banks that join the executive board on the bank’s rate-setting governing council is led by a woman. And the ECB is far from an exception — women are exceptionally rare in central banks the world over.

Economists love to portray themselves as iconoclasts who follow the evidence and act rationally. So why is central banking gender politics so 19th century? Read more

Claire Jones

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

More QE from the Fed?

Will we see the Federal Reserve restart quantitative easing next week? Read more

Chris Giles

There is a chart regarding the UK economy which has become so ubiquitous it is known in our office simply as “the Niesr chart”, because it is often republished by the National Institute of Economic and Social Research. It is supposed to be a clear and concise account of Britain’s recent economic woes, putting the recession into accurate context of past recessions. It shows the current recession as the longest and nearly the deepest since the start of the 1930s. People don’t generally know that in the UK the 1920s recession was much worse, but I’ll leave that for now.

Here is the latest version of “the Niesr chart”, published today. Take a good look at it before I tell you why I have begun to become irritated by it.

It is arresting because it does most things right. It is simple to understand. It is clearly drawn and obviously in context. The problem is that that the Niesr chart might be showing us irrelevant nonsense. It is also not a sufficient description of the UK’s recession. Read more

Claire Jones

Luxembourg’s Yves Mersch, left, arriving at an ECB executive board meeting in Finland last year.

Yves Mersch’s path to a seat on the European Central Bank’s powerful six-member executive board has been rocky.

The head of the Luxembourg central bank was, at first, not even considered a leading candidate for the position, which was being vacated by a Spaniard and, Madrid assumed, would be filled by a Spaniard. But a caucus of northern European countries balked at putting another southerner on the board, so inflation hawk Mersch became their candidate.

That set off months of nasty backroom battles, where the Spanish insisted on compensation – at one point they held out for the head of the new €500bn eurozone rescue fund, which was supposed to go to German economist Klaus Regling – in exchange for acceding to Mersch. Luxembourg retaliated by holding up plans to give Spain more time to hit tough budget targets.

In the end, the northerners won out. Mersch was nominated, and Spain was left empty handed. Everyone thought the fight was over. Everyone thought too soon: this morning, the European Parliament announced it was postponing Mersch’s confirmation hearing scheduled for Monday because no women candidates were considered for the job.

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Claire Jones

For obvious reasons, trying to come up with any reliable inflation in North Korea is tricky.

In an authoritative new study on hyperinflation*, economists Steve Hanke and Nicholas Krus attempted to do so in a fascinating way.

The evidence is far from conclusive, but by examining the foreign exchange black market and by observing changes in the price of rice, the research suggests that North Korea suffered a bout of hyperinflation between December 2009 to mid January 2011. At its height, in March 2010, prices might have risen by a staggering 496 per cent over the course of a single month.

Though the research cannot firmly conclude whether or not North Korea experienced a bout of hyperinflation, the economists manage to pull together enough reliable data to reveal there have been far more episodes of hyperinflation than commonly thought.

Uncovering episodes of hyperinflation is fraught with difficulty as they tend to happen in extreme conditions and in parts of the world where the data is not altogether reliable. Read more

Robin Harding

The fourth paper at Jackson Hole, by Princeton economists Markus Brunnermeier and Yuliy Sannikov, is about the redistributive effects of monetary policy — although I think that will mislead people as to its content.

It is not a paper about how low interest rates and QE redistribute wealth from savers to consumers. Instead, it is a paper about how a crisis damages banks and how monetary policy may be able to mitigate some of the negative effects by redistributing wealth to recapitalise them. Read more