Central Banks

ECB can start worrying about growth, not inflation

6 Jun 2024

The European Central Bank cut interest rates for the first time since September 2019, but predicted inflation will stay above its 2% target until 2026. That could tempt Frankfurt hardliners to delay further monetary easing. Doing so would endanger the bloc’s fragile recovery.

Russian bond rout raises risk of financial crunch

4 Jun 2024

Yields on the country’s debt are at 20-year highs on worries about the budget largesse lavished on the economy. With inflation rising and interest rates at 16%, President Vladimir Putin’s desire to keep funding the conflict in Ukraine could result in lasting fiscal turmoil.

Change is coming to UK’s macroeconomic policy

31 May 2024

The opposition Labour Party, the strong favourite to win the upcoming election, has promised continuity in its fiscal and monetary approach. An ugly economic inheritance at home and global challenges abroad make that ambition unrealistic. Investors should prepare for a shift.

Fed should be independent, not untouchable

28 May 2024

Allies of Donald Trump want to blunt the Federal Reserve’s autonomy if the former US president wins a second term. That would be economically disastrous. But a mighty central bank with a $7 trln balance sheet requires better scrutiny, especially outside monetary policy.

Japan’s new widowmaker trade may have shorter life

23 May 2024

For more than two decades, investors who bet against Japanese government bonds lost their shirts. Taking a long position in the yen has been similarly painful recently as the currency dropped by 50% against the dollar. Yet there are several reasons why the slide could reverse.

The dollar and the yuan are polar opposites

16 May 2024

The strong greenback and questions over a Chinese devaluation reflect the contrasting outlooks for the two economies. In this Viewsroom podcast, Breakingviews columnists debate why Beijing is unlikely to push down its currency and why the dollar will remain elevated.

Yuan devaluation isn’t worth the trouble

14 May 2024

A weaker currency would boost exports and prices, but speculation China could engineer a fall underestimates Beijing’s desire for a stable exchange rate. Aggressive US tariffs could change the calculus. For now, official signals point to a slow grind lower against the dollar.

Economic hard landing is delayed but not cancelled

10 May 2024

It’s two years since the Federal Reserve started hiking interest rates, yet economic growth has picked up and stocks have hit new highs. There are several reasons why the US economy is less responsive to tighter monetary policy. But it cannot avoid the effects indefinitely.

BoE cavalry will arrive too late for Rishi Sunak

8 May 2024

After a local polls rout, the UK prime minister badly needs an economic boost before this year’s national elections. But Bank of England Governor Andrew Bailey will only cut rates when inflation drops from the current 3.2%. By then, it could be too late for the government.

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.