Monetary Policy

A plot twist threatens Jay Powell’s artful script

27 Feb 2024

Higher borrowing costs are helping achieve the Fed’s 2% inflation target without a recession, but US wages and consumer spending tell a different tale. The upward price pressure augurs elevated interest rates for longer. To ensure a happy ending may require revising the story.

Why central banks risk making more mistakes

27 Feb 2024

Western rate-setters were late in fighting inflation. In this Exchange podcast, TS Lombard economists Dario Perkins and Davide Oneglia argue that, as price growth abates, the US Federal Reserve and European Central Bank may be too slow in easing monetary policy.

Higher rates insidiously creep into the boardroom

22 Feb 2024

Stock prices have been on a tear, in anticipation of the Fed reversing its policy. The exuberance ignores longer-term consequences of growing interest expenses. To pay them, many companies will have to cut back elsewhere. Share buybacks, capex and M&A look especially vulnerable.

Central banks’ waiting game plays with fire

21 Feb 2024

Western policymakers fret that if they cut rates too soon inflation may rebound. But keeping monetary policy tight has costs. Staying put as price growth abates means rate-setters squeeze consumers and companies, raising the odds of blowups in areas like commercial real estate.

Capital Calls: S&P/Visible Alpha

20 Feb 2024

Concise views on global finance: The financial analytics firm’s $500 mln bid for alternative data provider underscores the importance of bringing proprietary data to funds that trade on momentum. But as Lyft’s rally after a typo showed, automation has its limits.

Maxed-out shoppers put fire under Fed’s status quo

31 Jan 2024

American consumers are powering the economy. But their spendthrift ways are a big concern for central bank Chair Jay Powell. Credit card balances have just recorded the biggest jump on record and now top $1 trln. Rates are steady for now. The next move will be much riskier.

Fixed income investors have reasons to be fearful

23 Jan 2024

Uncertainty over the direction of inflation and monetary policy is buffeting markets. In this Exchange podcast Jim Grant, founder of ‘Grant’s Interest Rate Observer’, discusses his gloomy outlook for US bonds and sounds a warning about the risks of shadow banking.

BoE can win inflation race but lag on rate cuts

17 Jan 2024

UK price growth could drop in the spring due to lower energy bills, enabling the Bank of England to hit its 2% target before the US and Europe. But wage and services inflation will stop Governor Andrew Bailey from reducing borrowing costs. So will a likely UK fiscal splurge.

Imperial dollar is impervious to lower rate hopes

9 Jan 2024

In theory, the currency should weaken as the Federal Reserve readies to cut borrowing costs. But it is up 1% in 2024 and just had its best week since July. The US economy’s resilience is one reason. But the greenback’s strength also becomes a perpetual problem for everyone else.

Russia’s economy will suffer from brawl at the top

18 Dec 2023

The CEO of state-held oil major Rosneft slammed the central bank’s high interest rates. President Vladimir Putin has long thrived on tensions between hardliners and the few remaining technocrats. But with Moscow in permanent crisis mode, the high-level conflict spells trouble.

Policymakers take divergent paths toward rate exit

14 Dec 2023

Central banks in Europe and the US left borrowing costs untouched this week. But the latter went a step further and unexpectedly promised cuts. In this Viewsroom podcast, Breakingviews columnists explain how ratesetters, who were slow to tackle inflation, could be laggards again.

Powell was pragmatic; Lagarde will have to be

14 Dec 2023

The European Central Bank, like the US Federal Reserve, left its rates unchanged. But unlike Fed Chair Jay Powell, ECB boss Christine Lagarde didn’t imply that lower inflation meant looser monetary policy. A slowing economy and abating price pressures will push her there in 2024.

Bank of England drags Bagehot into the shadows

1 Dec 2023

The 19th-century economist recommended lending freely to stem financial panics. Now watchdogs are pondering how to apply this principle to financial markets dominated by bond investors and unregulated entities. The UK central bank has an idea, but it only works in some cases.

White House needs to talk turkey about inflation

22 Nov 2023

The Biden Administration has encouraged Americans to “be thankful” for falling prices this year. But cherry-picking some items that have edged down from recent peaks won’t counter the fact that US citizens feel glum about the economy. A bit of empathy might go a long way.

Social Security collides with idle golden years

9 Nov 2023

Republican presidential candidates pitched a handful of ideas for saving the US benefit, like a higher retirement age. But potential solutions can’t dent the real issues: an aging population and massive, broad overspending.

Japan’s rates tweak is careful and crafty

2 Nov 2023

The central bank changed its policy to allow higher 10-year bond yields. Unlike the US, it can afford to raise borrowing costs slowly as inflation is low. In this Viewsroom podcast, Breakingviews columnists explain why monetary tightening as others loosen may give Tokyo an edge.

Capital Calls: Ford, Amazon

26 Oct 2023

Concise views on global finance: The loss per car at the $45 bln automaker’s electric-vehicle unit has jumped 51% in a year. So-so earnings at the $1.2 trln e-commerce giant’s cloud division beat the even lower bar set by rival Alphabet.

US deficit problem screams for revenue solution

23 Oct 2023

Rising interest costs threaten to widen a $1.7 trln budget gap already stretched beyond 7% of GDP. Lawmakers are haggling about spending, but the math only works with higher taxes. It means closing an inheritance loophole, charging the rich more and resetting the corporate rate.

China’s leaders speed towards Japanisation

20 Oct 2023

The People’s Republic invests more than Japan did at the height of its 1980s asset bubble. China’s real estate is more overvalued, and its debt is higher. President Xi Jinping’s centralised rule and stifling of private enterprise increase the risk of Japanese-style lost decades.

Bond blues kick the fun out of racy stocks

2 Oct 2023

Yields are rising for the wrong reason – persistent inflation rather than growth. That’s pushing shares down as well. Some companies will suffer more. Those with higher portions of cash flows coming in the future, like technology firms, are most vulnerable.