Monetary Policy

Guest view: Fed hikes spell emerging-market strain

4 Feb 2022

Poorer indebted economies face growing difficulties as the U.S. Federal Reserve signals its readiness to raise interest rates. William Rhodes, former president of Citibank, and economist Stuart Mackintosh lay out what creditors, borrowers and the IMF can do to avert a crisis.

Big Oil elbows out banks as Fed’s new kingmaker

3 Feb 2022

The energy sector has come out swinging against Sarah Bloom Raskin, President Biden’s pick to lead supervision at the U.S. central bank. The ex-Fed governor is outspoken on climate risks. The business lobby could frustrate her confirmation, even with Democrats in Senate control.

ECB shows words matter more than actions

3 Feb 2022

President Christine Lagarde left interest rates unchanged while the Bank of England raised them. Yet she made the bigger market splash by admitting inflation risks had grown. It was the first clear sign that she may join global peers this year in tightening monetary policy.

New Bank of England guessing game begins

3 Feb 2022

A second rate rise in as many months raises the question of how quickly Governor Andrew Bailey will reduce bond holdings accumulated during the pandemic. A gradual approach won’t cause economic or market pain. But debt yields will become more volatile once the Fed follows suit.

Oil dims hope central bankers will walk fine line

28 Jan 2022

Brent crude topped $91 a barrel for the first time since 2014. Rate-setters can usually ignore temporary jumps, but not when inflation is already high. Fed boss Jay Powell and global peers will struggle to hike rates enough to curb price pressures without stifling growth.

Investors need to get used to working harder

27 Jan 2022

America’s economy expanded at a 6.9% annual pace in the last quarter of 2021. A healthy rebound supports the Fed raising interest rates soon. But the U.S. central bank faces a balancing act, and everyone else following markets will have to be more alert than before, too.

Jay Powell embarks on difficult Goldilocks act

26 Jan 2022

The Fed boss is likely to signal rates will start rising in March to curb inflation. The robust economy can cope with that as well as the three other hikes that investors expect him to deliver before year-end. Anything more will leave little room to deal with economic hiccups.

Fed rate feast leaves crumbs for bank customers

19 Jan 2022

Big U.S. lenders like JPMorgan are readying for an inflow of interest income as the central bank puts up rates. But the amount they pass to depositors is likely to be even more paltry than in past cycles. Competition from upstarts like SoFi may improve service but not returns.

Christine Lagarde will win rate rise timing tussle

19 Jan 2022

Money markets imply the European Central Bank will hike twice this year, even though its boss says policy tightening is unlikely in 2022. She will have to work hard to convince markets, but reason is on her side. Wage pressures are less evident in the euro zone than in America.

Banks’ rate-rise rewards may be bigger than ever

17 Jan 2022

Deposits at large U.S. lenders are up by a third since 2019 to $11 trln. They’ve stashed much of the cash in central-bank reserves, which immediately earn more as rates go up. Tighter monetary policy usually helps banks, but especially so given their current mix of assets.

Central banks will give risky debt a helpful shock

13 Jan 2022

Benchmark bond yields are rising as rate-setters around the world scale back asset purchases. That will reduce the appeal of corporate debt, but a correction in credit markets is nothing to fear. A setback may lead to less hazardous terms for bondholders, and a rout is unlikely.

Turkey’s lira prop-up plan is dangerous

21 Dec 2021

President Tayyip Erdogan is guaranteeing deposits against local currency drops. It’s tacit admission Turkey’s banks aren’t immune to fallout from his odd views on inflation and interest rates. Details are fuzzy but putting taxpayers on the hook for the lira is asking for trouble.

Trailblazing UK rate rise may pay off in the end

16 Dec 2021

The Bank of England is the first major central bank to hike its policy rate. The ECB faces less acute price pressures and the Fed must consider the job market alongside inflation. It’s a gamble, but acting now means British rate-setters will have less hiking to do in the future.

New Fed dot plot joins unreliable post-Covid data

15 Dec 2021

The U.S. central bank’s signature chart of interest-rate expectations now foretells three hikes in 2022. But the forecasters will change as three seats on the Fed’s board open up. Other economic reports and the recovery are also hard to interpret. The dots are far from settled.

Money travels in Hong Kong even if people can’t

10 Dec 2021

The HKMA and PBOC trotted out a roster of banking and regulatory grandees to defend the city’s position as a financial hub. Hosting such an event at all suggests extended isolation is a growing worry. They make a strong case, however, about the power of capital flows into China.

China’s PBOC showdown will force Xi to pick sides

9 Dec 2021

Officials want to rein in the central bank’s “independence”, according to a media report. It’s the latest sign of a concerted attack on the PBOC’s hard line on deleveraging. If the Chinese president joins in, aggressive easing may be imminent at the cost of economic rebalancing.

Transitory isn’t the only thing Fed should retire

30 Nov 2021

Chair Jay Powell reckons it’s time to stop using this adjective to describe current high inflation rates. That’s welcome, if overdue. Rate-setters could also usefully retire forward guidance. In such uncertain times, it’s counterproductive to appear to commit to a policy path.

Omicron may give inflation a chance to bed in

29 Nov 2021

The new coronavirus variant could ease short-term price pressures if it triggers wider lockdowns that curb consumption. But if it prolongs supply-chain problems the reverse will be true in the longer term. Especially if cautious central bankers delay tightening monetary policy.

Voters are last brake on Turkey’s lunatic express

19 Nov 2021

Bullied by President Tayyip Erdogan, the central bank slashed borrowing costs to 15%. Fearing runaway inflation, the lira plunged to record lows. With few other checks on a leader at war with interest rates, 2023 elections may be Turks’ best hope of restoring monetary sanity.

Chancellor: China’s economic miracle is ending

11 Nov 2021

President Xi Jinping wants to deflate the housing bubble and deleverage the economy while maintaining high growth rates. But every country that, like China, adopted the so-called Asian development model eventually faced a crisis. There is no easy way for China to avoid one.