Monetary Policy

Strong U.S. equity returns tell wrong story

13 Jan 2020

The S&P 500 Index rose roughly 30% in 2019, even as over $180 billion drained out of U.S. equity funds. This bumper return is mostly down to falling interest rates – with some help from around $735 billion in stock buybacks. Investors ought to watch flows, not just prices.

Mark Carney has reason to ease before he leaves

13 Jan 2020

The UK economy grew at its slowest annual pace since 2012 in November. The Bank of England boss has one more policy meeting left before Andrew Bailey takes over. Catching up with recent easing by the U.S. Federal Reserve and European Central Bank would be the best handover gift.

Hotter inflation is the best surprise to hope for

2 Jan 2020

The absence of much price pressure is a head-scratcher for the Fed given the tight U.S. labor market. It’s behind debilitating negative interest rates in Europe and Japan. It’s a problem for pension funds, insurers, savers and banks. A mild return would be unexpected but welcome.

Jay Powell has golden chance to avow independence

18 Dec 2019

The Fed boss can distance himself from President Donald Trump by nudging the U.S. central bank to join a global green network that already includes 51 peers. This will defuse criticism that he has been too malleable on rates. And it may even help to save the planet from frying.

Lebanon’s financial alchemy is losing its magic

18 Dec 2019

The world’s third most indebted nation – with borrowings north of 150% of GDP – may be careening toward a default and an IMF rescue. A complex financial engineering scheme that propped up the banking system is now sputtering. Local banks and foreign bondholders could take a hit.

Hadas: Maybe Paul Volcker wasn’t all that great

17 Dec 2019

The U.S. central banker, who died on Dec. 8, supposedly broke the 1970s inflation with recession-inducing high interest rates. After 40 years of falling inflation worldwide, his contribution looks less certain. He also missed an early chance to criticise financial deregulation.

ECB feuding will have a new front in coming year

11 Dec 2019

Christine Lagarde took the helm of the European Central Bank with a promise to review strategy. A debate on how to define its price stability mandate will embolden those rate setters who are fed up of ultra-loose policies. The battle will be bitter and played out in public.

Sweden will manage a singular rate rise

6 Dec 2019

The Nordic country’s rate setters want to lift the policy rate out of sub-zero territory in December. Sluggish growth, lower inflation and trade weakness mean they face a high burden of proof to justify such a move. Their explanation may not stretch to a second hike anytime soon.

Shinzo Abe fires off another feeble arrow

5 Dec 2019

Japan’s latest fiscal stimulus package, worth just over $120 billion, will avert stagnation or worse. But a recent consumption tax hike and slower global activity pose risks that policymakers lack the firepower to tackle. Healthy growth and inflation will prove elusive.

Fed’s stability is an appreciating asset

20 Nov 2019

Ambassador Gordon Sondland implicated not just President Donald Trump, but also the vice president and secretary of state in the House impeachment probe. The central bank’s independence should comfort investors – unless Trump starts threatening Chair Jay Powell’s job again.

ECB decisions would benefit from a bit more light

11 Nov 2019

The central bank’s policy-making process is less formal and transparent than peers. New boss Christine Lagarde could change that by holding formal votes. Publishing the results, as the Fed does, would raise problems. But disclosing anonymous tallies would still be an improvement.

Hadas: Sweden raises tone of negative rate debate

6 Nov 2019

Its central bank plans to increase the policy interest rate to zero. Current conventional thinking says that is a step in the wrong direction. But there are reasons to worry about minus signs on rates. If the economy emerges unscathed, others may copy the Swedish experiment.

Fed cut is over-stuffing the cushion this time

30 Oct 2019

Another interest-rate reduction is what traders wanted. But U.S. stocks just hit a record high, the economy is chugging along with solid – if not spectacular – growth, and inflation has crept up. The Fed’s touted data dependency is looking more like addiction to the markets drug.

Mario Draghi’s tacit advice to Christine Lagarde

24 Oct 2019

The outgoing ECB boss says his successor needs no guidance. But his last big news conference contained clues. First, never give up, though economic risks are rife. Second, turn the page on infighting. Third, be wary of financial bubbles. Fourth, expect brickbats, whatever you do.

Bolsonaro’s epic pensions victory may be his last

23 Oct 2019

Brazil’s president has secured a budget-saving $195 bln overhaul of the country’s retirement program. It’s a success that eluded plenty of his predecessors. But the far-right leader’s low approval ratings and endless controversies may make tax and spending reforms a tougher slog.

Christine Lagarde gets lucky with German ECB pick

23 Oct 2019

Berlin is set to nominate Isabel Schnabel to the central bank’s board. The university professor would bring economic expertise, and, judging by public comments, more open views on monetary policy than her Teutonic predecessor. The new ECB president would welcome both qualities.

IMF crystal ball is cloudiest on what matters most

15 Oct 2019

The international lender cut its growth predictions for this year and next. Issues like trade wars and Brexit make it hard to forecast how some of the most advanced economies will perform. If there are stumbles, these are also the countries least likely to heed IMF advice.

Hadas: American wealth tax starts looking doable

9 Oct 2019

What seemed like political theatre at the start of the Democratic debates has gone mainstream, embraced by leading presidential contenders. A capital levy would slow the pace of inequality, if the public mood changes enough. More surprisingly, it might even help the economy.

Breakdown: Fed needs adaptable repo response

8 Oct 2019

Chairman Jay Powell says the U.S. central bank will start buying bonds again to help ensure money markets stay well behaved. The Fed has learned a tough lesson from last month’s spike in repo rates: exiting the era of quantitative easing isn’t going to be easy.

Bank of Japan tests the limits of monetary policy

1 Oct 2019

The weakest Japanese government-bond auction in three years caused global yields to jump. The swift reaction, rooted in uncertainty about new policies designed to keep rates low, should teach Europe a worrying lesson: A bond-purchasing safety net can sometimes be dangerous.