Monetary Policy

Bond market tightening complicates Powell’s task

31 Jan 2018

U.S. Treasury yields rose to near four-year highs even as the Fed left policy unchanged at Janet Yellen’s last meeting. A fresh growth spurt and worsening deficit outlook pose challenges for successor Jerome Powell. Hiking in a rising-rate environment is riskier for the economy.

Fed’s inflation-target rethink dodges big question

29 Jan 2018

Some U.S. rate-setters wonder about their 2 percent goal – both its level and whether it’s more a ceiling or a long-term average. The debate is welcome but could be even more radical. Today’s real issue is whether central bankers can fully explain, let alone control, inflation.

Chancellor: Bitcoin will never be real money

9 Jan 2018

The leading crypto-currency has monetary characteristics. But without state backing and a means for circulating credit in the capitalist economy it lacks the nature of money and is destined to fail. That’s why some more modest bitcoin alternatives, like ripple, look more promising.

German workers may frustrate ECB’s inflation hopes

9 Jan 2018

Industrial staff in Europe’s biggest economy are striking for higher pay. They may, however, trim wage demands in return for flexible working. If pay pressures fail to flare in such a tight labour market, the European Central Bank can hardly count on them surfacing elsewhere.

Tight U.S. labor market may finally move Fed

5 Jan 2018

December’s relatively weak jobs and wage growth gives policymakers a breather. But with 2.1 mln positions created in 2017 and unemployment historically low, long-awaited pay increases - along with new tax cuts - could soon start stoking inflation. That would force the Fed’s hand.

U.S. junk bonds are time bomb with a long fuse

29 Dec 2017

Low default rates, a lack of alternatives and foreign demand will support high-yield bonds in 2018. Yet with spreads near record lows, covenants weak and leverage rising, the seeds of a bear market are plentiful. Investors should keep a wary eye for the first shoots of trouble.

Fed calls time on monetary and regulatory activism

21 Dec 2017

After nearly a decade of zero rates, asset purchases and tighter rules, the central bank is stepping back. Janet Yellen started the trend as the crisis receded, but her chair apparent promises a real laissez-faire shift. Markets may struggle to adapt to life without a Powell put.

Portugal beats Italy in bond market pecking order

15 Dec 2017

The country that needed a bailout in 2011 can borrow for less than its larger peer. Investors’ preference for Portuguese debt reflects its more vibrant economy, and messy Italian politics. Lisbon can keep outshining Rome, so long as lax bond markets don’t encourage bad habits.

Hadas: The mystery of lost competition

6 Dec 2017

The U.S. tax cut is expected to boost corporate earnings but not lower prices or raise wages. That implies there’s too much tacit collusion for basic economic theory to work as designed. Limited price competition is great for shareholder value, but bad for the economy.

Cox: Trump bump aside, U.S. stocks lag in 2017

30 Nov 2017

The president has unprecedentedly staked his political colors to the mast of rising equity prices, calling the S&P's rally a validation of his policies. Yet most other markets around the world have done even better. There are bigger forces at work than U.S. corporate tax rates.

Indian economy shaking off Modi’s shock therapy

30 Nov 2017

Growth of 6.3 pct last quarter suggests fallout from the premier's policy pileup is fading. He’s leading a bold drive to improve the way India is governed. Getting a few more things right, like the resolution of bad debt, is a precondition to turn this into a solid economic run.

Yellen gives Congress parting shot on growth, debt

29 Nov 2017

The outgoing Fed boss warned of growing deficit risks just as lawmakers weigh tax cuts that would exacerbate it. It’s also up to politicians to improve education, investment and infrastructure spending. Her message of central bank limitations is one her successor will echo.

Fed chair pick shows mastery of central-bank arts

28 Nov 2017

Jerome Powell breezed through his Senate confirmation hearing with Zen-like confidence. He dodged the tax-reform debate, kept rate-hike comments predictable, backed Fed independence and defended its bank-rules review. The prospect of post-Yellen stability will please markets.

Powell’s mystery Fed board poses continuity risk

20 Nov 2017

As expected, Janet Yellen will leave the U.S. central bank when her successor takes over. Jay Powell will inherit a skeleton board in need of four more Trump appointees. The lack of holdovers, amid a pivotal shift away from crisis-era policies, could make for a bumpy transition.

Japan’s growth streak starts to look shakier

15 Nov 2017

GDP grew an annualised 1.4 pct last quarter, marking the longest unbroken growth run in 16 years. The data is volatile, and often revised, but a global boom appears to be offsetting weaker domestic demand. That underscores the need for further structural reform.

Central bankers go self-referential on rhetoric

14 Nov 2017

Fed Chair Janet Yellen and other top rate-setters took the stage in Frankfurt to discuss how they communicate. It’s a slightly meta admission of the role speechifying has come to play in monetary policy in an era of ultra-low interest rates. But wordiness brings its own perils.

New York Fed needs a new boss with teeth

6 Nov 2017

William Dudley is set to retire as president of the regional watchdog, which has day-to-day oversight of large lenders like Deutsche Bank and Goldman Sachs. As Washington leans toward deregulation, Dudley’s successor will be the first line of defense in ensuring banks behave.

Bank of England rate hike has dismal logic

2 Nov 2017

The first increase in UK interest rates for a decade is no grounds for celebration. Rather, it’s an admission that Brexit has permanently lowered the country’s growth prospects. Governor Mark Carney must worry about inflation and a weak currency. The rest is up to politicians.

Bank of Italy chief’s new term faces uphill start

27 Oct 2017

Ignazio Visco has been reappointed as central bank governor despite political opposition. His first challenge is to quell critics of his handling of Italy’s banking crisis. EU rules are also getting tougher and Mario Draghi’s departure from the ECB in 2019 will remove an ally.

Hadas: Greed is best indicator of financial crisis

26 Oct 2017

New research casts small-time property investors as the secret villains in the 2007 U.S. house price collapse. As usual, the love of leverage was the root of financial distress. Balance sheets are stronger today, but investors still haven’t learned the virtue of moderation.