Simone Baribeau

Sure, sounds good, but will it be effective?

That’s the question everyone’s asking today about BP’s latest effort to stem the tide of oil gushing into the Gulf of Mexico. But it could just as appropriately be asked of the progress of the US HIRE Act, past in March, which gives employers tax credits of up to $1,000 per worker and provides a payroll tax exemption for employer social security payments. Read more

Simone Baribeau

Since global central banks widely expanded their roles in the financial crisis, their leaders have been warning about the dangers of attacks on their autonomy. Earlier this week, Ben Bernanke, US Federal Reserve chairman, said that undue interference can “impair inflation-fighting credibility” and “worsen the economy’s longer-term prospects”.

And over the past few months central bank leaders warned of attacks in Argentina (where the central bank chief was fired after refusing to transfer foreign exchange reserves to the government), South Korea (where a vice minister attended a monetary policy meeting), Japan (where the central bank faced pressure to increase lending) and Mexico (where some viewed the appointment process of the new Bank of Mexico governor as politicised). Read more

Simone Baribeau

Economics majors are no less likely to vote than other majors, but if we do, we tend to cast our ballots for Republicans.

This according to a new study from the NY Fed that tests to see if those with undergraduate degrees in economics tend to incorporate our lessons on acting in rational self interest into our day-to-day lives.

Voting is, in economic terms, not very rational. A single person’s vote is unlikely to change the results of an election, so the costs (for instance, the opportunity cost of going to vote) outweigh the benefits.

And yet, it seems, we still do it as frequently as other majors. (On the other hand, one of the school’s polled is Florida Atlantic University – perhaps former students there, remembering the 2000 election, were acting rationally – voting because they thought the election could come down to a single vote).

But when we head to the polls, we vote Republican. Read more

Exit polls from a state election in Germany suggest there was no outright winner. Such a result would strip Angela Merkel’s government of its majority in the Bundesrat, the upper house of parliament in Berlin. This would make legislation harder to pass, and could affect the scale and speed of future eurozone bail-outs.

This from APRead more

Simone Baribeau

…is still very much up in the air. But Senate banking leadership is one step closer to coming to defining the future shape of the US central bank. The Federal Reserve would no longer be able to use its 13(3) lending authorities to help insolvent companies if the bill and the fresh amendment are passed, according to a statement released by Chris Dodd, Senate banking committee chairman.

UPDATE: The Senate has passed the amendment

The amendment comes on the same day that Charles Plosser, Philadelphia Fed president, reiterated Fed leader’s plea that Congress refrain from removing the central banks supervisory authority over smaller banks. (The bill passed by the House doesn’t limit the Fed’s supervisory authority, but the proposed Senate bill would). Read more

Simone Baribeau

In December 2004, the FOMC voted to expedite the release of its minutes to three weeks after they announce their policy decisions (about three weeks sooner than they had been).

Recently released transcripts give us a window in to the committee’s thinking, and the decision was not made lightly. You can imagine that now – as legislators call for increased Fed transparency – the FOMC may be having similar debates about what information is it going to offer to share with the public. Read more

James Politi

Barack Obama, US president, is set to nominate Janet Yellen, president of the San Francisco Fed, to replace Don Kohn, the outgoing vice-chairman. Mr Obama is also expected to fill two additional vacancies on the seven-member Fed board of governors with Sarah Raskin, a state banking regulator in Maryland, and Peter Diamond, an economist at the Massachusetts Institute of Technology.

More on FT.com

Simone Baribeau

Barack Obama, US president, and Ben Bernanke, Fed chairman, both spoke today at the first meeting of the National Commission on Fiscal Responsibility and Reform.

Notable was their focus on Medicare and Medicaid, rather than Social Security, as a culprit behind US budget deficit woes. Read more

Robin Harding

The Bank of Japan is not going to let the government foist an explicit inflation target on it without a fight. In a fascinating speech given in New York yesterday BoJ governor Masaaki Shirakawa argues that inflation targets are one reason that central banks allowed asset price bubbles to develop. For good measure he suggests that the world learned the wrong lessons from Japan’s deflation – and implies that US monetary policy in the 2000s was too loose as a result.

Mr Shirakawa’s argument:

Second, some political, economic and social dynamics influenced central bankers, and it became difficult for them to conduct monetary policy based on factors other than the inflation rate. This mechanism is quite subtle. The logic that price stability is a precondition for economic stability and that the independence of the central bank is necessary for price stability, became gradually but firmly established in the 1990s. At the same time, the granting of independence naturally called for the strengthening of accountability. An easily identifiable benchmark was desired. The framework which best fulfilled such needs was inflation targeting. However, under an inflation targeting regime, the debate tends to center on the relationship between the target inflation rate and the actual or expected inflation rate.

As a result, the cost of justifying adjustments in monetary policy becomes quite high in the eyes of central bankers, when such adjustments are aimed to deal with imbalances which appear in forms other than price indices. Economists focused their attention to the linkage between the output gap and the inflation rate, while awareness toward financial imbalances was limited.

 Read more

From Ft.com

By Jude Webber, Argentina correspondent Read more

Simone Baribeau

He was instrumental in develop the US’s emergency measures, but he won’t be around to see them to their end, at least not in his current role.

Brian F. Madigan, the Federal Reserve’s director of monetary affairs, will resign from his post at the Fed in July, the US central bank said in a statement today.

Mr Madigan, who served as director for three years, helped develop the emergency lending programmes which bolstered the financial system in the wake of Lehman Brother’s collapse, and was a long-time student of Zirp – the zero-interest rate policy the bank plans to continue for an “extended period.”

Mr Madigan won’t follow in his sometime predecessor Donald Kohn’s footsteps and join the Federal Reserve Board. Instead, he will serve as senior advisor to the board and be replaced by the division’s deputy, William B. English, currently the department’s deputy.

Doesn’t look like the move is a major shake-up. Read more

Simone Baribeau

Today Alan Greenspan is speaking before the financial crisis inquiry commission about the Federal Reserve’s actions during the housing and mortgage boom which preceded the bust. Mr Greenspan has already spoken widely about his view of the Fed’s role in the crisis before Congress, in media interviews, in a recent academic analysis, and in his memoirs. But now it’s the FCIC’s turn to have a crack at him. They’ve got their work cut out for them if they want to get any fresh information from the former Fed chairman.

Update: They do a pretty good job. Note especially that Mr Greenspan says that Congress’s push toward homeownership affected the Federal Reserve’s decisions.

This is the second set of hearings, called “Subprime lending and securitisation and government-sponsored enterprises”. The hearing will last three days and cover 17 witnesses. Mr Greenspan is the first.

The hearing’s over. But here is the FT’s live blog, written as it happened, on the new (and old) Mr Greenspan had to say about the Fed and the crisis. Read more

By Francesco Guerrera, US finance and business editor

[Roll of drums, spotlight on the New York Federal Reserve] And the answer is: 161 pages of pretty incomprehensible documentsRead more

By Jude Webber, Argentina correspondent

After weeks of legal wrangling, Argentina’s government is free – at least for now – to start using a chunk of central bank reserves to pay debt after judges overturned the suspension of a controversial emergency decree issued by President Cristina Fernández earlier this month. Read more

By Jonathan Wheatley, Brazil Correspondent

Henrique Meirelles, who is expected to resign as governor of Brazil’s central bank this week, was due to meet Luiz Inácio Lula da Silva, president, on Tuesday to decide his political future. Read more

Simone Baribeau

Fed leaders – past and present – have chosen today to be awfully talkative. And they haven’t at all times been in agreement with each other, either. So here are the highlights of today’s Fed speak.

Alan Greenspan, Former Fed chief, on the Bubble

Alan Greenspan, in an interview with Bloomberg TV, disagreed with SF Fed president Janet Yellen’s assessment that an increase in interest rates could have mitigated the growth of the housing bubble. He argued, as he has before, that a decrease in long term interest rates around the world led to the boom. Short-term interest rates were irrelevant.

Ok – so long-term interest rates are responsible for the bubble. We sure don’t want to encourage a housing bubble based on that again. Right?

Maybe not. Read more

Simone Baribeau

President Barack Obama is reported to be looking at San Francisco Fed president Janet Yellen to fill Donald Kohn’s vice chairman seat when he leaves this summer. So what had Ms Yellen been looking at to boost the US economy?

Housing, she said in a speech today.

Ms Yellen, San Francisco Fed president, said last year she “became hopeful that the sector would provide a significant boost to the economy this year.”

But then, she said, the market seemed to have stalled. Indeed, home sales data released earlier today and the impending end of the home buyer tax credit bode poorly for a home price bottom.

Optimism on housing is nothing new for Ms Yellen (or, as we know, other FOMC members). Read more

Simone Baribeau

The Bank of England does it. The Bank of Japan does it. So why can’t the Fed do it?

Ben Bernanke spent the afternoon arguing before a House committee that it would be a serious mistake to take bank supervisory authority away from the central bank. It was an argument he, and several other FOMC members, had made before. But for the first time, a question from a Congressman forced him to publicly justify his position from an international perspective. Read more

Simone Baribeau

It’s not often that the US’s two gaping deficits make the news the same day, so today we’re able to have our fill of gap developments (though, we’re unlikely to be much closer to filling the gaps themselves.)

This morning, in a letter to Tim Geithner, treasury secretary, and Gary Lock, commerce secretary, 130 members of Congress asked for action on “currency manipulation” in China. Read more

Simone Baribeau

You’ve got to hand it to President Barack Obama’s expected Fed picks – they have some strong consumer credentials.

Peter A Diamond co-wrote a book with Peter Orszag, now OMB director, on saving social security. The book, first published in 2004, suggests only minor reforms, and makes clear that social security needs saving as much from its reformers as from the deficit expected in 2042. Read more