Category: Central Banks

Fed economists’ study warns of future episodes of ultra-low rates

FT/Sam Fleming/03-23-17

Even as US rate-setters make tentative progress in the direction of more normal monetary policy, economists are warning that central banks are set to find themselves with official interest rates stuck back down at near-zero levels dispiritingly often in the future.

A study to be presented at the Brookings Papers conference this week by two Federal Reserve Board economists finds that rates could hit zero as much as 40 per cent of the time – far more often than predicted by other studies.

PG View: This could explain why the Fed is raising rates into economic weakness, just so they have some room above the zero-bound and don’t have to go negative.

Posted in Central Banks, Monetary Policy |

Fed’s Yellen does not comment on monetary policy

Reuters/Lindsay Dunsmuir/03-23-17

Federal Reserve Chair Janet Yellen did not address monetary policy or the economic outlook in prepared remarks for a childhood education conference in Washington on Thursday.

The two-day conference which she was introducing is focused on how to educate children and young adults for future success in employment.

Yellen is not scheduled to take any audience questions, according to the conference agenda.

PG View: This will free markets to continue on their post-FOMC trajectories. Good for gold.

Posted in Central Banks, Monetary Policy |

A blind spot masks the danger signs in finance

FT/Gillian Tett/03-17-17

Debate has been frenzied this week about how fast the US Federal Reserve plans to raise interest rates. But as investors look forward, it is also a good time to glance back and ask why rates have been so low this decade.

Conventional wisdom usually blames two factors: first, central banks such as the Fed have deliberately pushed down policy rates with startling quantitative easing experiments; second, rates have been depressed by the curse of “secular stagnation”, the phrase coined by Harvard economist Lawrence Summers.

More specifically, Mr Summers and others argue that the global economy is suffering from a stark structural decline in aggregate demand. Thus low (or negative) market rates are a consequence and a signal of collective investor forecasts about future economic gloom; or so this narrative goes.watch full Kong: Skull Island movie online

But could this secular stagnation explanation be completely wrong?

PG View: The suggest being, that central banks perpetuated economic pessimism by keeping rates too low for too long.

Posted in Central Banks, Monetary Policy |

Pound Rallies, Gilts Fall After BOE Holds Rate Amid Split Vote


Bloomberg/Anooja Debnath/03-16-17

The pound appreciated against all of its major peers and bonds fell after Bank of England policy maker Kristin Forbes voted for an interest-rate increase, a dissent that caught some in the market by surprise.
The most important market news of the day.

Sterling climbed to a two-week high and gilts sold off across the curve as the central bank kept the benchmark rate at a record low in an 8-1 vote. Investors are now pricing an 80 percent chance policy makers will raise rates by September 2018, compared with about 60 percent yesterday, money-market pricing shows. Forbes supported a rate increase to 0.5 percent, and some of those in the majority said it wouldn’t take much more strength in inflation or growth for them to also shift their view.

Posted in Central Banks, Monetary Policy |

As near as I can tell, the last Fed dissenter opposing a rate hike, was Governor Mark Olson at the September 20, 2005 FOMC meeting.

Release Date: September 20, 2005

For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 3-3/4 percent.

…Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Richard W. Fisher; Donald L. Kohn; Michael H. Moskow; Anthony M. Santomero; and Gary H. Stern. Voting against was Mark W. Olson, who preferred no change in the federal funds rate target at this meeting.

Posted in Central Banks, Monetary Policy |

FED’S KASHKARI: There are a few simple reasons why I voted to keep rates on hold

BusinessInsider/Pedro Nicolaci da Costa/03-15-17

His argument was fairly straight forward: Why tighten monetary conditions when inflation remains below the Fed’s target, inflation expectations are subdued, and the job market is probably still not operating at its full potential despite the low jobless rate?

…Add to that the uncertainty generated by some of the recent political chaos in Washington, and the case for a near-term Fed rate hike becomes much less compelling.

Posted in Central Banks, inflation, Monetary Policy |

Gold surges on Fed decision that included the first dovish dissent since…since…I’ll have to do some research on that…

Posted in Central Banks, Gold News, Gold Views, Monetary Policy |

Fed raises rates by 25 bps, as was widely expected. Minneapolis Fed’s Neel Kashkari dissents.

Release Date: March 15, 2017
For release at 2:00 p.m. EDT

Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the Committee’s 2 percent longer-run objective; excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.

Posted in Central Banks, Monetary Policy |

Atlanta Fed GDPNow Latest forecast: 0.9 percent — March 15, 2017

Atlanta Fed/03-15-17

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.9 percent on March 15, down from 1.2 percent on March 8. The GDP growth forecast declined 0.3 percentage points on Friday when the February estimate of the model’s latent dynamic factor used to forecast yet-to-be released GDP source data declined after the employment situation release from the U.S. Bureau of Labor Statistics (BLS). The forecast for first-quarter real consumer spending growth inched down from 1.6 percent to 1.5 percent after this morning’s retail sales report from the U.S. Census Bureau and the Consumer Price Index release from the BLS.

PG View: That chart does not reflect a situation that would typically warrant a rate hike . . . just sayin’.

Posted in Central Banks, Monetary Policy |

ECB holds rates at record lows as inflation rises

FT/Claire Jones/03-09-17

The European Central Bank has kept interest rates on hold at record lows, despite internal pressure from hawks for Mario Draghi to start reining in the currency bloc’s monetary stimulus.Watch movie online The Transporter Refueled (2015)

…Despite the concern of governing council members who have highlighted rising inflation, the ECB’s statement also reaffirmed the bank’s landmark quantitative easing programme, which is due to purchase €780bn worth of bonds this year.

Posted in Central Banks, Monetary Policy, QE |

ECB left monetary policy unchanged, maintains QE schedule and easing bias, but Draghi hints at slow move toward neutral bias.

Posted in Central Banks, Monetary Policy, QE |

Fed officials jolt market with talk of pending rate hike

Reuters/Ann Saphir & Jonathan Spicer/03-01-17

A handful of Federal Reserve policymakers on Tuesday jolted markets into higher expectations for a March U.S. interest rate increase, with comments that suggested rate-setters are worried about waiting too long in the face of pending economic stimulus from Washington.

New York Fed President William Dudley, among the most influential U.S. central bankers, said on CNN that the case for tightening monetary policy “has become a lot more compelling” since the election of President Donald Trump and a Republican-controlled Congress.

Posted in Central Banks, Monetary Policy |

China eyes 12 percent broad money supply rise in 2017 – sources

Reuters/Kevin Yao/02-28-17

China plans to target broad money supply growth of around 12 percent in 2017, slightly lower than last year’s goal, policy sources said, signaling a bid to contain debt risks while keeping growth on track.

Under its new “prudent and neutral” policy, the People’s Bank of China (PBOC) has adopted a modest tightening bias in a bid to cool torrid credit expansion, though it is treading cautiously to avoid hurting the economy.

Posted in Central Banks, Monetary Policy |

The World’s Most Radical Experiment in Monetary Policy Isn’t Working

WSJ/John Lyons & Miho Inada/02-26-17

Japan remains definitively stuck, despite a long and aggressive experiment with ultralow rates. A quarter-century after its property bubble burst, a penny-pinching generation has come of age knowing only economic malaise, stagnant wages and deflation—a condition where prices fall instead of rise.

The belief that deflation will continue has become so ingrained it has presented seemingly insurmountable challenges to monetary policy, a lesson for other countries that are traveling a similar path.

“It is hard to change the deflationary mind-set even with radical policies,” says Frederic Neumann, co-head of Asia economics for HSBC. “I would argue Japan will remain in its funk and will remain there for many years.”

PG View: I would suggest Japan may be stuck indefinitely . . .

So, is the Fed moving ever-so-slowly in the opposite direction in recognition of this harsh reality? Or are they just giving themselves a little clearance above the zero-bound so they can do more if it?

Posted in Central Banks, Monetary Policy, Negative interest rates, QE |

Trump’s vast power to reshape the Fed could lead to complete mayhem for markets

BusinessInsider/Pedro Nicolaci da Costa/02-14-17

President Donald Trump already had ample leeway to reshape the Federal Reserve, with Janet Yellen’s term as chair expiring early next year and two key slots on the central bank’s board left open after Republicans failed to bring President Barack Obama’s longstanding nominees to a vote.

Now, with the sudden resignation of Daniel Tarullo, Trump pretty much has free rein over the powerful US central bank.

PG View: If the plan is to cut taxes and unleash a massive infrastructure spending plan, it might behoove President Trump to pack the Fed with doves. Similarly, Trump’s concerns about dollar strength could easily be resolved by reversing expectations of further rate hikes.

Posted in Central Banks, Currency Wars, Monetary Policy |

Here Is How the Federal Reserve Could End the Bull Market in Stocks


TheStreet/Scott Gamm/02-15-17

The Federal Reserve is stuck in a major pickle — and it’s not about how many times to raise interest rates this year.

The problem stems from years and years of asset purchases — known as quantitative easing. Under the program, the Fed purchased bonds and mortgage-backed securities from banks in the years following the 2008 financial crisis, hoping the companies would use the cash to lend money and stimulate the economy.

PG View: When the Fed ultimately moves to start unwinding its $4.5 trillion balance sheet it could prove incredibly disruptive to markets. And what do you suppose are the odds of another crisis hitting before the balance sheet is fully unwound? I’d say very high as this is likely to be multi-decade process.

Posted in Central Banks, Monetary Policy, QE |

Yellen flags up ‘considerable’ uncertainty over US fiscal policy

FT/Shawn Donnan/02-14-17

The US economy and fiscal policy face an uncertain path under the administration of Donald Trump, Janet Yellen warned on Tuesday as she played down any expectations of a March rate rise and reiterated that “monetary policy is not on a preset course”.

…That improving economic picture, she said, justified December’s move by the Fed to raise interest rates for only the second time in the past decade and expectations that it would have to continue to increase its target rate gradually in the months to come.

PG View: The alleged improving economic picture late last year seems not to be reflected in GDP, which fell to a 1.9% pace in Q4, vs 3.5% in Q3. That means that overall growth in 2016 was just 1.6%.

Posted in Central Banks, Monetary Policy |

Fed holds steady on policy, as expected. Door open for March hike, but data and political uncertainty could delay.

Posted in Central Banks, Monetary Policy |

BoJ holds steady on policy in line with expectations. Kuroda says it’s still too early to discuss QQE exit strategies.

Posted in Central Banks, Monetary Policy, QE |

Central Banks Embrace Risk in Era of Low Rates

WSJ/Christopher Whittall, Jon Sindreu and Brian Blackstone/01-23-17

By keeping interest rates low and in some cases negative, central banks have prompted some of the most conservative investors to join the hunt for higher returns: Other central banks.

Central banks from Switzerland to South Africa are investing a bigger share of their growing foreign-exchange reserves in equities, corporate bonds and other riskier assets.

PG View: Central banks risk becoming victims of their own policies; right along with individual investors who were pushed out along the risk curve. Should the value of these more risky assets ultimately collapse, the central banks will tout their shrinking balance sheets, while the individual investors are crushed.

Posted in Central Banks, Monetary Policy |

Liquidity support a ‘tool’ that sends rights signals: PBOC

Reuters, via Asian Times/01-23-17

Move by China’s central bank to provide temporary liquidity support marks the creation of a new policy tool designed to ease seasonal cash shortages while sending the signal that monetary policy remains stable and neutral, according to the Financial News.

…The PBOC made the funds available to the country’s five biggest banks after short-term funding costs spiked to near 10-year highs heading into the long Lunar New Year holiday starting on January 27, sparking fears of a cash squeeze.

Posted in Central Banks, Monetary Policy |

Yellen not worried about surge of inflation

MarketWatch/Greg Robb/01-19-17

Signs of overheating in the broader economy are “scarce” at the moment and risks are small that such conditions could suddenly emerge, said Federal Reserve Chairwoman Janet Yellen on Thursday, signaling she saw no reason to rapidly raise interest rates.

…But deciding when to move and by how much “will not be easy,” she said. There are uncertainties from fiscal policy and the outlook for the global economy, she added.

Posted in Central Banks, Monetary Policy |

The Fed keeps making the same mistake

BusinessInsider/Pedro da Costa/01-19-17

Federal Reserve Chair Janet Yellen has shown a knack for needlessly boxing herself into promises about the likely path of interest rates that have proven wildly incorrect in the past – and damaged the central bank’s credibility in the process.

…Yellen this week said the Fed would raise rates “a few times” over the next couple of years, creating unnecessary expectations in financial markets that will likely be disappointed.

Posted in Central Banks, Monetary Policy |

Draghi strikes dovish tone


FT/Mehreen Khan/01-19-17

“There are no signs yet of a convincing upward trend in inflation”, said the Italian, who added that “risks to euro area growth outlook tilted to downside due to global factors”.

Mr Draghi also said ECB policymakers had discussed details on how to buy government bonds below its -0.4 per cent deposit at its January meeting following a decision to drop the ceiling last month.

Posted in Central Banks, Monetary Policy |

ECB holds steady on policy, in line with expectations. Easing bias maintained. Draghi presser underway.

Posted in Central Banks, Monetary Policy |

Fed’s Yellen says ‘makes sense’ to gradually raise interest rates


Reuters/Ann Saphir/01-18-17

“Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road – either too much inflation, financial instability, or both,” Yellen said in remarks prepared for delivery to the Commonwealth Club of California in San Francisco.

“In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession.”

Posted in Central Banks, Monetary Policy |

BoC steady policy, in line with expectations. Poloz says rate cuts remain on the table amid global uncertainty.

Posted in Central Banks, Monetary Policy |

FedSpeak: Atlanta Fed’s Lockhart says it’s too early to estimate likely fiscal policy impact on GDP, but he only sees 2% growth.

Posted in Central Banks, Economy |

FedSpeak: Boston Fed’s Rosengren says 3 hikes in 2017 is “reasonable”, but timing will depend on incoming data, global conditions and fiscal policy.

Posted in Central Banks, Monetary Policy |

Fiat Money Quantity breaks $15 trillion

24hGold/Alasdair Macleod/01-06-17

“The fiat money quantity has now breached the $15 trillion level, standing at $15,108bn on November 1st 2016, the last calculable date. This is now $6.3 trillion above the pre-Lehman crisis trend-line, exceeding it by 72%. Instead of the Lehman rescue being a temporary fix, the increase in the quantity of fiat money has continued to grow over eight years later.”

PG View: The proliferation of paper — paper in the form of debt and paper in the form of fiat currency — is one of the primary driving forces behind gold price appreciation over time. I concur with Mr. MacLeod when he says, “gold must be regarded as significantly undervalued relative to fiat dollars.”

Posted in Central Banks, Currency Wars, Debt, U.S. Dollar |