Central Banks

Europe has little to fear as ECB and Fed part ways

7 May 2024

The European Central Bank is set to cut rates before the US Federal Reserve for the first time in its history. Hardliners warn that will weaken the euro and feed inflation. But the effects are likely to be muted. Besides, a lower currency helps exports more than it hurts imports.

China banks’ $900 bln buffer offers sham comfort

7 May 2024

That’s roughly how much special debt the country’s five largest lenders must raise to obey global rules for absorbing large-scale losses. It’s an improbable scenario in China’s state-controlled financial system. For the banks, extra funding costs add to a long list of headaches.

Jay Powell might wish for the sound of silence

30 Apr 2024

With inflation at 3.7%, the Federal Reserve chair is stuck. Signal lower rates are coming, and he may have to backtrack. Talk about increasing them, and bonds may go haywire. With a potential change in the White House, Powell’s intentions carry even greater weight, too.

Yen intervention is a lost cause worth pursuing

29 Apr 2024

Tokyo may have acted to prop up the currency after it dropped below 160 to the dollar. It’s a losing bet until the US Federal Reserve cuts rates or the Bank of Japan tightens monetary policy further. But there is value in signalling to the world that this is not a one-way street.

US economy is a victim of its own success

25 Apr 2024

The United States emerged as the world’s growth engine at the IMF summit last week. In this Viewsroom podcast, Breakingviews columnists debate whether this debt-fuelled strength means that interest rates will stay high for longer and how that could raise the risk of a recession.

European banks have little to lose from rate cuts

25 Apr 2024

Tighter monetary policy boosted revenue at BNP Paribas, Deutsche and Barclays, who now face ECB and BoE loosening. Markets expect some 50 basis points of rate cuts, but that shouldn’t hurt bank income much. Deposits may get cheaper, while old loans keep rolling onto higher rates.

EU Fannie Mae idea is bad answer to good question

25 Apr 2024

A report led by former French central banker Christian Noyer advocates more securitisation to help fund $1 trln of annual green and digital investments. He’s right that bank balance sheets need unclogging. But subsidising the slicing and dicing of mortgages isn’t worth the risk.

Austerity is a bad economic answer at a worse time

16 Apr 2024

While the global economy is running hot right now, the International Monetary Fund warns that long-term growth will be below its 3.8% pre-pandemic trend. The problem is, a familiar prescribed fix of budget cuts and high rates has failed in the past and would do so again today.

Look out for a return of the US bond rollercoaster

16 Apr 2024

As short-term interest rates spiked, longer-term borrowing costs have lagged. The yield on three-month US Treasury bonds has exceeded the return on 10-year securities for 76 weeks, a near record. If this anomaly unwinds, falling bond prices could hurt fund managers and Uncle Sam.

Bernanke partly mends cracks in BoE’s crystal ball

12 Apr 2024

The former Fed chair’s review of the Bank of England’s economic forecasts contains some sensible ideas. He correctly urges the central bank to stop relying on market predictions of future interest rates. But he could have pushed harder for UK policymakers to climb off the fence.

European bond traders are chasing the wrong lead

11 Apr 2024

The European Central Bank flagged a rate cut in June, before the Federal Reserve. Yet yields on Germany’s two-year bonds are near the five-month high hit after Wednesday’s strong US inflation data. If the ECB is true to its word, obsessing about the United States won’t work.

Big banks turn inflationary lemons into lemonade

11 Apr 2024

Stubbornly high consumer prices may delay US monetary easing, a boost to lenders like JPMorgan or Citi that thrive amid high rates. Further relief could come from the dilution of tough new capital rules. For smaller banks, exposed to stressed borrowers, life tastes more sour.

Powell’s rate cuts may go from steady to steep

10 Apr 2024

Inflation hit 3.5% in March, making a June cut to borrowing costs unlikely. But Fed Chair Jay Powell is running out of time. A decrease in September would be seen to favor President Biden. The November decision is one day post-election. The only other option: take bigger whacks.

ECB’s rate cuts can help bond traders – and itself

8 Apr 2024

Holders of euro zone government debt have lost 14% in three years. Frankfurt policymakers can change that by cutting rates in June, before major peers. Lower borrowing costs would have another winner: the European Central Bank, which could save $7 bln a year in interest expenses.

Central banks’ noise helps dollar – and Joe Biden

28 Mar 2024

In February, traders’ hopes of rate cuts by the Federal Reserve sent the currency lower. But it has risen 1.8% in March, partly due to policymakers’ mixed messages. Until the fog clears, the greenback will rule forex markets. That curbs US inflation and may benefit the president.

BoE gears up to unnecessarily prolong worker pain

20 Mar 2024

The Bank of England is set to keep rates steady because it wants to see slower wage growth before easing policy. But pay rises are already falling and won’t cause inflation. The central bank could help 30 mln employees, and 11 mln borrowers, by cutting borrowing costs sooner.

Japan’s first step to new normal is the easiest

19 Mar 2024

The central bank raised interest rates, ending 26 years of unconventional stimulus. Policymakers hinted they will keep borrowing costs steady for a while but the pressure to curb inflation, rather than unleash its virtues, may rise fast. The hard work for the country starts now.

ECB’s money drain has silver lining for markets

14 Mar 2024

The European Central Bank is ready to exit its huge stimulus programme. With 4.7 trln euros of bonds on its books, that will take time but policymakers want few surprises. A new regime of setting rates and relying on banks to ask for loans will wean them off cheap money.

Japan’s rate shift will hit zombie firms hardest

14 Mar 2024

The central bank could end an era of negative borrowing costs as early as next week. In this Viewsroom podcast, Breakingviews columnists argue that large companies are ready for the tightening, but many struggling small businesses could hit the wall even if policymakers go slow.

Capital Calls: Small Fed windows

12 Mar 2024

Concise views on global finance: US consumer prices rose 3.2% year-on-year in February, above the Federal Reserve’s 2% target, prompting traders to rein in hopes for rate cuts. The agency’s Chair Jerome Powell could have avoided that by guiding markets towards a higher number.