Monetary Policy

Central banks have a way to spur greener recovery

24 Jun 2020

Fed chief Jerome Powell and ECB boss Christine Lagarde are purchasing bonds without taking account of whether they are supporting the carbon-intensive status quo. There are good reasons for that. But they can at least demand more disclosure of climate risks before buying.

UK stimulus exit talk may do more harm than good

23 Jun 2020

Central bank boss Andrew Bailey is talking about how monetary easing will be unwound, while finance minister Rishi Sunak may later this year unveil deferred tax rises. Payback is inevitable. But when flagged so clearly, it undermines recovery efforts.

Andrew Bailey can freeload on Fed and ECB largesse

18 Jun 2020

The Bank of England boss will buy an extra 100 billion pounds of bonds, but at a slower pace. His peers are being more open-handed. For example, banks just borrowed 1.3 trillion euros from the European Central Bank. Ample global liquidity will help Bailey contain UK debt yields.

Corona Capital: KKR, Rugby, Centene

12 Jun 2020

Concise views on the pandemic’s corporate and financial fallout: KKR volunteers advisers to share the pain, Super Rugby heads back to the pitch, and Centene's best bet.

Fed risks nothing new – yet – on nascent recovery

10 Jun 2020

After early aggressive action, Chair Jay Powell and his colleagues added no more on Wednesday. He committed to keep conditions very easy, but there was no sign of yield-curve control or negative rates. That makes sense given the unknowable trajectory of the post-pandemic upturn.

Inflation is alive and well in equity markets

10 Jun 2020

The May U.S. consumer price index fell 0.1%. So massive money creation doesn’t seem to be generating inflation. But the S&P 500 is up 24% this quarter, IPOs are cruising and bankrupt companies are getting bids, all while unemployment is at 13%. Policymakers probably won’t notice.

Central bankers’ new headache is V-shaped

8 Jun 2020

Fed boss Jay Powell and ECB chief Christine Lagarde have succeeded in crushing yield premiums on risky debt. Now optimism about the post-Covid recovery is pushing up interest rates on benchmark U.S. and German government bonds. Squashing those will be their next battle.

Review: MMT lives up to some of its promises

29 May 2020

“The Deficit Myth” clearly explains why governments should aim to balance the economy, not the budget. Stephanie Kelton’s book comes at a good time, as huge deficits will help limit the pandemic’s damage. Unfortunately, Modern Monetary Theory suffers from narrowness and naivete.

Corona Capital: GE cash burn, Macy’s lifeline

28 May 2020

Concise views on the pandemic’s corporate and financial fallout: General Electric’s cash flow will be more negative than expected as Covid-19 damages its aviation and power businesses; and U.S. department-store chain Macy’s borrows more, buying time but not much else.

To win, U.S. Treasury needs to be ready to lose

19 May 2020

The Fed’s $600 bln Main Street bailout is still not up and running. Among the hurdles are terms that banks may not like, partly due to the Treasury’s conservativism. Steven Mnuchin told senators he was willing to take losses. It's a necessary investment to reduce future trouble.

Negative rates would trigger UK banking rollup

19 May 2020

British rate-setters including BoE Chief Economist Andy Haldane are contemplating taking policy rates below zero. Bank margins would suffer, but big ones like Barclays have more fee income to rely on. Stragglers like Virgin Money and Metro may have to put themselves up for sale.

Breakdown: Fed is right to nix negative rates

15 May 2020

Futures markets are pricing in a small chance of policy interest rates going below zero even though Jay Powell, chair of the U.S. central bank, rebuffed the idea this week. Europe and Japan are already in that territory. Breakingviews explains why D.C. can afford to say no.

Curbing German exceptionalism has political price

11 May 2020

A national court’s ruling on ECB asset buying has challenged the primacy of EU law. If politicians can’t defuse the stand-off, Brussels will have to take legal action against Europe’s paymaster. The fiasco is likely to give Euroscepticism across the continent a boost.

Turkey’s policy sins will be visited on companies

7 May 2020

The lira fell to a record low against the dollar. The central bank set interest rates too low in the past, then depleted FX reserves to limit the exchange-rate damage. Its war chest is too small to prevent further depreciation. Disaster looms for firms with foreign-currency debt.

Andrew Bailey will have the UK bond market’s back

7 May 2020

The Bank of England boss expects a big drop in GDP this year. His asset purchases have pushed down gilt yields despite surging public debt issuance. Investors can count on Bailey to ramp up the buying programme given how long the economy will take to recover from the virus.

Poor-country central banks will go awry aping Fed

4 May 2020

Rate-setters from Indonesia to Hungary are copying Fed Chair Jay Powell by buying bonds. Others could well follow. That will curb borrowing costs at a time of rising public spending. But these policymakers run bigger inflation and credibility risks than their developed peers.

Free ECB money is little use for battered banks

1 May 2020

President Christine Lagarde launched yet another programme to slash funding costs for lenders. History suggests much of the benefit will flow straight to borrowers, as intended. Loading up on southern European debt would be profitable but risky, and may irk supervisors.

Central bankers have more cards up their sleeves

29 Apr 2020

Fed Chair Jay Powell and his peers have fashioned new tools to fight the Covid-19 crisis. In future downturns, they could copy the BOJ’s stock buying and, in extremis, consider financing governments directly. Only surging inflation or overt political meddling will hold them back.

Christine Lagarde will need an even bigger bazooka

29 Apr 2020

The ECB boss is snapping up so many bonds to keep Italian and other southern euro zone debt yields in check that she may soon have to augment the 750 billion euro purchase plan unveiled less than two months ago. The more she does, the more squabbling time she buys EU leaders.

Bank of Japan gifts Abe massive monetary backstop

27 Apr 2020

The central bank says it will buy unlimited government bonds to support a $990 bln stimulus package, plus ramp up purchases of other assets. That helps the prime minister hold off catastrophe, but the BOJ’s balance sheet is getting even more massive with no end in sight.