Category: Economics

How Long Can Interest Rates Stay Low?


When a central bank lifts interest rate targets by 0.5% it expects households and firms to respond. In a crisis, the official target may fall by 3% in order to shock the economy into a positive response. These movements of interest rates by the central bank are an important tool of macroeconomic adjustment.

They are also relative to the longer term, or normal rate of interest in the economy. What is interesting now is that rates have been low for quite a long time suggesting the natural rate of interest in the economy has fallen permanently.

Elections, Monetary Policy, Trade and Currencies


The election in Spain did not lift the uncertainty but re-redoubled it.  Given the outcome, it is difficult envision a majority government.  Purely looking at the numbers, a coalition between the Popular Party and the Socialists is simplest solution.  It is like Pasok and the New Democracy in Greece and the Christian and Social Democrats in Germany.

Conference Closes with “Death of Doha and Birth of New WTO”


The World Trade Organization (WTO) closed its Nairobi Conference over the weekend with some agreements and new directions many — both in the negotiations and reporting on their outcome — found surprising. Indeed, some say the changes may have such significance that they could completely change the face of the WTO.

For the first time since 2001, when the Doha round launched, the WTO’s 164 members declined to “reaffirm” the Doha mandate. Moreover, the members agreed to discuss an array of new issues and focus on smaller, more incremental reforms.

Next Year will Pose Some Significant Market Challenges


The broad interpretative framework we developed since late 2014, one that centers the de-synchronization of the major economies, will retain its usefulness into the New Year and beyond.

The Federal Reserve standing pat after winding down their open-ended asset purchase operations (QE3+) characterized the first phase of divergence.  This occurred while many central banks from high-income countries, including the Eurozone, Japan, China, Canada, Australia, New Zealand, Sweden, and Norway eased policy.

Laying the Groundwork for 2016

The Dollar Recovering Post-ECB Slide


The dollar rose against all the major currencies over the past week.  The divergence meme we have emphasized has continued to unfold.  The ECB eased policy at the start of the month.  Less than 48 hours after the Fed hiked rates, the BOJ tweaked its asset purchase program to sustain it.

Holiday-thin markets make for more treacherous conditions than usual.  The news stream lightens, and participation will fall off until January 4.   

Ask the Experts about the U.S. Fed Rate Hike Decision


Three, two, one, liftoff!

Alex Nikolsko-Rzhevskyy, Lehigh University

It finally happened: the nine-year-long spell of near-zero interest rates came to a logical end. The Fed raised its funds rate target in the first step toward normalizing US monetary policy.

Was this decision justified? Yes, for many reasons.

Fed Chair Janet Yellen has been gradually preparing markets for a hike for a long time, leaving today’s decision in little doubt: only about 15% of traders didn’t think it was coming.

Largest Economy Outside WTO Poised to Join


If given the option to choose an economy that is the largest non-World Trade Organization (WTO) member, most people would not guess Iran. Most people would be wrong.

Japan’s Central Bank Tweaks its Monetary Policy


The Bank of Japan was the fourth major central bank to meet this week.  Sweden and Norway kept policy unchanged.  The Fed hiked.  There was no expectation that the BOJ would do anything.  Governor Kuroda surprised the market with largely operational tweaks to what Japan calls Qualitative and Quantitative Easing.

Initially, and perhaps with the help of headline reading algos, the yen sold off and Japanese shares rallied.  As cooler, or perhaps human, heads prevailed, the markets reversed. 

Asia’s Lesson for Africa on Global Supply Chains


At this week’s 10th World Trade Organization (WTO) Ministerial Conference in Nairobi, Kenya, trade ministers are trying to advance 15 years of Doha Development Agenda talks to reduce trade barriers. The real issue, however, is whether African economies can follow East Asia’s success in global supply chains amid “new normal” growth and rising inequality.

Japan’s Relationship with India is Slowly Growing


India–Japan ties have never been as strong as they are today. The trajectory of upward swings began a decade ago and has accelerated in the last few years. But the newfound chemistry between Japanese Prime Minister Shinzo Abe and his Indian counterpart Narendra Modi has taken the relationship to new heights.