Monetary Policy

Does $20 trillion buy much inflation?

11 Aug 2020

The market’s answer is a firm no. Global stimulus worth over 20% of world GDP has been unveiled, on Bank of America’s numbers. Future price expectations are rising but have yet to bust central bank targets. These low readings show the continuing mystery of inflation’s causes.

Can the Fed help close the racial prosperity gap?

22 Jul 2020

Economists advising U.S. presidential hopeful Joe Biden have proposed making racial equity part of the Federal Reserve’s mandate. That chimes with the zeitgeist. But if it means rate-setters ignore too-high inflation for too long, it could hurt those Biden aims to help.

EU has fairness vs. speed dilemma on pandemic cash

17 Jul 2020

Brussels wants to use backwards-facing metrics like past jobless rates to assign 310 bln euros of Covid-19 grants. Basing handouts on EU states’ actual hits to GDP would be fairer, and may win richer countries’ support. For needier peers, that risks slowing down the recovery.

How to revamp the EU’s fiscal rules

16 Jul 2020

The pandemic makes the often-ignored cap on government debt at 60% of GDP look even more anachronistic. But axing fiscal rules entirely would strain the euro zone. Better to regularly review countries’ ability to sustain their public debt and offer incentives for wiser spending.

Indonesia cautiously crosses central bank rubicon

9 Jul 2020

Bank Indonesia will buy $28 bln of bonds directly from the government, breaking a long-held taboo. It will refund interest gains, and the securities will be tradeable, providing price transparency. That’s about as credible as an emerging market monetary authority can hope to be.

Hadas: A virus economic optimist partly recants

8 Jul 2020

Three months ago, it felt bold to predict little lasting damage from the pandemic. Money-fuelled markets have embraced that outcome, but pumped-up hopes are now too high. Global finance is undisciplined, fear and bitterness lurk, and governments may have gained too much power.

Fed keeps yield-curve control in back pocket

2 Jul 2020

Minutes of the U.S. central bank's June meeting suggest ambivalence about the policy. It’s unnecessary for now, with bond markets quiescent. If that changes, Japan’s experience shows the tactic can effectively cap long-term interest rates. But it may not deliver higher inflation.

Ukraine central banker exit is nail in reform hope

2 Jul 2020

Governor Yakiv Smoliy quit, citing political pressure. He tamed inflation and stood up to the former owners of nationalised PrivatBank. His resignation scuppered a bond issue and puts a $5 bln IMF loan at risk. Opaque vested interests are winning out over transparency in Kyiv.

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.