No fear among bank economists
For all the turmoil in the markets over the past month, economists at the top US banks remain reasonably bullish about the future.
The American Bankers Association said its economic advisory committee, chaired by Stuart Hoffman of PNC Financial, believes there will be no “double-dip” recession in the US, which will instead experience a “moderate but solid” recovery with growth of 3 per cent this year and next. Read more
Morgan Stanley expects the Fed to keep rates on hold until 2011 in the wake of the sovereign debt crisis in Europe. Their previous estimate was September of this year.
The investment bank said it expected the target rate on fed funds to climb to 2.5 per cent by the end of next year, and forecast the 10-year Treasury yield to be 1 percentage point lower, at 4.5 per cent, by year end. “The European sovereign credit crisis, its threat of contagion beyond Europe, and its effect on inflation expectations is the key reason for these significant changes,” said the research note. Read more
By Michael Mackenzie, US markets correspondent
The main interest rate for the economy has quietly climbed towards the upper end of the range established by the Federal Reserve during the financial crisis, heralding a potential end to the central bank’s “near-zero” rate policy. Read more
Asymmetry in monetary policy
Ever heard of asymmetrical risk?
Well, it may be a key reason why Federal Reserve policymakers are keeping interest rates “exceptionally low” for an “extended period”. Read more
The Fed’s exit and the discount rate
Ben Bernanke, Federal Reserve chairman, heads to Capitol Hill on Thursday for a hearing on the US central bank’s exit strategy.
With the latest FOMC statement out only a week ago, few economists are expecting any significant changes to the monetary policy outlook of “exceptionally low” rates for an “extended period”. But that does not mean there won’t be news coming out of Mr Bernanke’s mouth. One guess of several economists, such as Michael Feroli of JPMorgan, is that the headlines could be made by a discussion of the discount rate – the rate at which commercial banks can borrow from the Fed in a pinch.
References to the discount rate were notably absent from the FOMC statement last week – but that doesn’t mean the committee did not discuss it. Read more
Capital Economics: Fed to maintain ‘extended period’ pledge
Capital Economics said in a note today that the Fed’s extended period language may be debated in its meeting next week, but the FOMC will not drop it. But, the group says, that doesn’t mean the meeting will be uneventful. There is a possibility that the Fed will continue to increase the discount rate over the fed funds rate. (Its first move toward discount rate normalisation came last month, when it raised the spread by 25bp to 0.75 per cent).
But Capital Economics said a change in the extended period language – that is, the language the Fed uses to signify that it won’t raise the federal funds rate for at least six months – would be premature given inflation and credit trends and also that the Fed will not want to make another significant change as it ends its asset purchasing programme.
Among the points Capital Economics make: Read more
Key rate watch
Other than a brief year-end dip, the Fed funds rate has been extremely close to the midpoint of its 0 to 0.25 per cent range after months of on and off flirting with the high end of the range.
What happened? Read more
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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS
Michael Steen, Frankfurt bureau chief, covers the ECB and the eurozone's economies. He joined the Financial Times in 2007 as Amsterdam correspondent and later worked as a front page news editor in London. Before joining the FT, he spent nine years as a correspondent at Reuters, mostly in foreign postings that included a previous stint in Frankfurt, as well as Moscow, Kiev and central Asia. He read German and Russian at Cambridge.RSS
Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS
Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS
Claire Jones is Money Supply economics team writer, based in London. Before joining the Financial Times, she was the editor of the Central Banking journal and CentralBanking.com. Claire studied philosophy and economics at the London School of Economics. RSS
