I have a piece in today’s paper previewing what promises to be a quiet Federal Open Market Committee meeting this month.
In particular, talk that the FOMC is now studying a programme of “sterilised” quantitative easing is, in my view, incorrect. I think the current FOMC discussion looks more like this:
Are US equities about to get a boost from a surprising source?
The Bank of Israel this month joined the Swiss National Bank and the Hong Kong Monetary Authority in investing in US stocks, initially setting aside 2 per cent of its $77bn reserves stockpile into share indices.
However, even though the amount could eventually climb to 10 per cent of its reserves, this hardly the sort of news that will move a market as big as US equities, for which $7.7 billion is small change.
But if other central banks, which collectively manage $10.7trn-worth of reserves, follow suit, then the impact could be significant.
The European Central Bank’s decision to purchase Italian and Spanish debt sparked fears that the bond buying could stoke inflation, with some believing the central bank would struggle to mop up the money used to buy the debt through its weekly fine-tuning operation.
However, the central bank is so far managing to “sterilise” – as the technique of mopping up the excess liquidity is known – with ease.
The European Central Bank has announced it has bought €16.5bn worth of eurozone government bonds so far as part of the eurozone rescue plan announced last week, and unveiled how it will make good its pledge to counter any inflationary side effects.
The scale of the ECB’s intervention was at the low end of analysts’ expectations, but still broke new ground for the guardian of the euro currency, which had previously forsworn buying government bonds outright.
The move split the ECB’s governing council amid fears the move would undermine polices aimed at ensuring price stability.