tightening

Jean-Claude Trichet spoke at the LSE on Monday afternoon.

Much of what he said was a combination of a couple of speeches he gave last week, the central message being that the eurozone needs to monitor member countries’ fiscal and macroeconomic policies and competitiveness more closely, and that there needs to be a sharper stick with which to beat countries that fail to behave themselves. Read more

The Bank of England would “have to” raise rates if oil price inflation remained high, Charlie Bean has said. Sterling has strengthened as traders have bet on an earlier rate rise.

The deputy governor of the UK’s central bank told businesses in Wales that inflation was driven by three factors: the weaker pound, VAT and commodity prices -

“We have seen substantial rises in food prices, which, in part, are connected to issues over bad harvests, but only partly,” he said. “We have seen oil prices rising, recently they have reached $100 a barrel, and global prices have been rising. The background of all these developments is the strong growth of emerging markets putting upward pressure on the price of commodities.” Read more

The cash crunch in India’s banking sector should not be allowed to disrupt economic activity. That’s the message from the Reserve Bank of India, which has raised its repo and reverse repo rates by 25bp. The repurchase rate is now 6.25 per cent; the reverse repurchase rate at 5.25 per cent.

Robust domestic growth and continued high inflation were given as the main reasons for continued rate normalisation. But governor Duvvuri Subbarao said rate rises were likely to slow, barring any inflation shocks: “Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low.”

James Politi

I was watching a segment on the Federal Reserve on CNBC television earlier today, and a couple of times the guests on the show referred to the resumption of quantitative easing as Ben Bernanke’s “bazooka”.

And that brought me way back to the summer of 2008 – when then treasury secretary Hank Paulson sought authority from Congress to bailout Fannie Mae and Freddie Mac, the huge mortgage giants, if necessary. Mr Paulson argued that if markets knew the government would rescue the companies, that would be sufficient to restore confidence, and a bail-out would not be necessary. But the opposite occurred, and little more than a month later, Fannie and Freddie were in conservatorship.

Back to Mr Bernanke. Read more

Chris Giles

A crunch meeting of the monetary policy committee on Wednesday will reveal the Bank of England’s verdict on the new coalition government and the emergency Budget.

Will the MPC judge the proposed spending cuts so damaging to recovery that it has to crank up the printing presses again and inject more money into the economy? Is the global and UK recovery so strong that the Bank can head for the exit and relinquish its extraordinarily loose monetary policy? Or will the MPC be so paralysed by uncertainty over the future that it will again do nothing? Read more

Perhaps to offset rumours of further easing, the Fed has announced further trial runs of a key tightening tool.

The New York Fed will test one of its main liquidity-draining tools by conducting a “series of small-scale, real-value reverse repurchase transactions” with primary dealers et al. This repeats and expands upon a similar set of tests announced in October and run in DecemberRead more

James Politi

Ben Bernanke is not quite a native of South Carolina – he was actually born in nearby Georgia. But he did grow up in the state, and returned there this morning to give his latest assessment of the US economy.

The headline, in my view, was that there is a “considerable way” to go before the US recovery is complete – a no-less dreary variation on his comments last week that the economic outlook is “unusually uncertain”.

Unemployment is high, the housing market is weak, financial conditions are less supportive of growth than they were earlier in the year, Mr Bernanke said, in his first remarks following Friday’s disappointing growth data, which showed real gross domestic product increasing at a slower pace in the second quarter than it did in the first.

But if anyone was hoping for Mr Bernanke to discuss what steps the Fed might consider at their monetary policy meeting next week to reboot the recovery, they were disappointed. Mr Bernanke did not address the issue, presumably to avoid speaking ahead of his colleagues on such a crucial, market-sensitive matter. Read more

East Asian central bankers are to meet in Sydney from Wednesday to Friday this week, focusing on international regulatory issues and inflation.

There’s plenty of common ground: East Asia has the highest concentration of rate-raising central banks in the world. Australia, New Zealand, South Korea, Malaysia and Thailand have already begun raising, and the Philippines is expected to start soon. Indonesia, Singapore, China and Hong Kong all show signs of recovery. Japan – the final member of the 11-country forum – will probably be the only participant more worried by deflation than inflation at this Executives’ Meeting of East Asia-Pacific central banks (Emeap). Read more

James Politi

To say that Janet Yellen, Sarah Bloom Raskin and Peter Diamond got off lightly at their confirmation hearing before the Senate banking committee would be an understatement.

With most members distracted – or absent- by the imminent final vote in the Senate on financial regulatory reform, the event itself only lasted about 90 minutes. And if ever it was in doubt, it now seems abundantly clear that the three nominees will be comfortably, and swiftly, confirmed to the Federal Reserve board of governors.

 Nevertheless, I was able to extract a few interesting nuggets from question-and-answer period. The most timely question came from Jeff Merkley of Oregon for Janet Yellen, who is slated to take over from Don Kohn as vice-chair. He asked where she stood on the dominant debate over US fiscal policy – should there be more stimulus or should authorities immediately start reining in the deficit ? Read more

James Politi

Janet Yellen has just released her statement to the Senate banking committee, where she – along with Sarah Raskin and Peter Diamond, other nominees to the Federal Reserve board - faces a grilling from lawmakers today on her bid to become vice-chair of the Federal Reserve replacing Don Kohn.

Ms Yellen, president of the San Francisco Fed, is predictably cautious as she introduces herself to the panel: “I am wholeheartedly committed to pursuing the Fed’s congressionally mandated goals of maximum employment and price stability and to strengthening our programme of supervision and regulation, building on the lessons learned during the financial crisis.”

Her statement gets a little meatier later on, and, reading through the lines, there are two main messages. On monetary policy, Ms Yellen still believes plan A is an eventual tightening. And to Congress, Ms Yellen is very clear: independence is crucial to central banking, so hands off the Fed ! Read more