Interest Rates

Central banks lay liquidity trap for stock markets

6 Sep 2024

The US Federal Reserve and its major peers took $200 bln out of the financial system in early August, likely deepening a global equity slump. Ratesetters control the money supply for good reasons. But their huge presence and investors’ herdlike behaviour add new layers of risk.

Europe’s inflation fix requires corporate pain

30 Aug 2024

Price growth in services is still running at 4.2%, too high for European Central Bank President Christine Lagarde. To bring it down, companies’ margins will have to absorb rising wage costs. Shareholders may balk but consumers, and the euro zone economy, will benefit.

Jay Powell’s task: reconcile markets and reality

23 Aug 2024

The Federal Reserve chair and skittish investors are now on the same page: the labor market is cooling, and it’s time to act. Punters are pricing in a relatively swift pace of rate cuts. The question is whether the Fed is really ready to move so quickly - or will be forced to.

Euro is reluctant wearer of King Dollar’s crown

23 Aug 2024

The currency is up nearly 3% against the greenback this month. That is odd because markets think European interest rates will fall more than US ones. Worries about Washington’s budget deficit are a factor, but the export-led euro zone can ill afford a strong exchange rate.

The ECB is running out of time to revive euro zone

16 Aug 2024

The bloc’s GDP rose by a steady 0.3% in the second quarter. But business surveys and sentiment data suggest growth is flagging. Inflation is sticky so European Central Bank chief Christine Lagarde may be reluctant to cut rates decisively. But waiting risks impairing the recovery.

Stocks are still strapped into a rollercoaster

13 Aug 2024

The VIX, an index that tries to gauge investors’ fears, soared 180% last Monday as stocks tumbled. Better US economic data and soothing words from the Bank of Japan have brought it down since. But history, and the shape of today’s markets, suggest that volatility is here to stay.

Jay Powell excels at his top job: punching bag

8 Aug 2024

Market ructions have revived Washington’s love of bashing the Federal Reserve and its chairman. From Elizabeth Warren to Donald Trump, public figures can take potshots knowing Fed independence limits the consequences. History suggests when politics really reigns, chaos ensues.

The Bank of Japan’s flipflopping can backfire

8 Aug 2024

Days after Governor Kazuo Ueda talked up interest rate hikes, his deputy is suddenly playing down the prospect. That may be intentional but it muddies the message to Japanese businesses on the outlook. It also overplays Japan’s role in sparking the global market ructions.

Reluctant rate cut leaves the BoE with a lot to do

1 Aug 2024

The Bank of England lowered borrowing costs to 5% – its first such move since the pandemic. But division in its ranks and Governor Andrew Bailey’s cautious tone imply further easing will be slow. Given the fall in inflation, that will unnecessarily crimp Britain’s weak recovery.

UK ratesetters can stop worrying and start cutting

31 Jul 2024

Markets are split on whether the Bank of England will lower borrowing costs from a 16-year high of 5.25% on Thursday. Governor Andrew Bailey worries about services prices, wages and growth. But a glimpse into the future shows that those bugbears are less scary than they look.

Euro-banks offer glimpse of possible bad-debt wave

24 Jul 2024

Deutsche upped its forecast loan-loss charge, contributing to a 7% share-price fall. BNP’s default provision spiked, and UniCredit’s has too in Germany. Most of the bad news relates to just a few specific corporate clients. But there will be more if rates stay higher for longer.

China rate cuts usher in next stimulus stage

22 Jul 2024

Days after Party leaders unveiled sweeping pledges to revive the $17 trln economy, the central bank unexpectedly cut key lending rates. It's a modest move but helps the PBOC establish a new benchmark and signals Beijing's urgency to speed up reforms. More policies will follow.

Inflation teaches five lessons for the next crisis

16 Jul 2024

After taming a 9% rise in prices without breaking economies, US Fed Chair Jay Powell and other central bankers are poised to pat themselves on the back. There’s also an opportunity to improve the playbook. Among the useful takeaways: embrace taciturnity, flexibility and humility.

Victorian rail mania has lessons for AI investors

12 Jul 2024

Excitement over artificial intelligence has spurred a wave of investment. In the mid-1840s, British speculators similarly went wild for another capital-intensive technology: railways. The historic boom and subsequent bust provide a salutary warning for today’s hyped-up markets.

China’s financial sector is put on needed GDP diet

11 Jul 2024

Officials have tweaked how they measure the value banks add to the $17 trln economy. Local governments now have less incentive to inflate lenders' deposits and loans. It's a sensible move that recognises how inefficient and bloated bank lending has become.

Bond traders’ rate-cut party is yet to get going

26 Jun 2024

Central banks from Ottawa to Frankfurt are reducing rates. Bond prices should be rallying, but an index of euro zone debt is up just 0.1% since the ECB eased borrowing costs this month. While French elections are one reason why, tight US monetary policy is the key constraint.

China central bank’s reform push is shrewd gambit

20 Jun 2024

Governor Pan Gongsheng hinted at a substantial revamp, including trading government bonds and simplifying interest rates. The changes will be a gradual process, but after having its wings clipped, they should help the central bank reassert its power in setting monetary policy.

Jerome Powell goes from astrophysics to stargazing

11 Jun 2024

Price pressures and a strong job market complicate the US central bank’s job. But it’s getting harder to delay interest-rate cuts after telegraphing them last year. Forecasts due Wednesday are pivotal. Muddled data ahead of the November election may sideline the Fed chairman.

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.