Monetary Policy

19 January 2016

Brazil May Want to Rethink Using IMF Forecasts

Brazilian central bank President Tombini said it would take into account the IMF’s revised forecasts for a deeper recession when it meets this week to decide on policy. Sorry, but we don’t buy it. IMF forecasts should not affect a...

14 January 2016

Looking to the Great White North for a Rate Cut

Speculation is mounting that the Bank of Canada will be the first major central bank to cut rates this year.  It meets on January 20.  The combination of the drop in oil prices (40% since mid-October) and the erosion of...

6 January 2016

Was it or Was it Not a Currency War?

Former Fed Chair Bernanke has penned a blog post that seeks to refute claims that the US monetary policy was the start of a currency war. Brazil’s finance minister first levied this claim in 2010 as the Federal Reserve, under...

5 January 2016

An Unusual Policy Move by Sweden’s Riksbank

Many countries may look with envy upon Sweden.  Growth last year was probably around 3%, with household consumption rising a little more than 2%.   Its current account surplus is 7.5% of GDP.  Exports were up by 4.3%.  Its budget deficit...

22 December 2015

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...

18 December 2015

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...

18 December 2015

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...

17 December 2015

The Sky Did Not Fall

Asia extended the US dollar's post-Fed gains while Europe has seemed content to consolidate the move, perhaps waiting for US leadership. Asia extended the US dollar's post-Fed gains while Europe has seemed content to consolidate the move, perhaps waiting for...

16 December 2015

A Dovish Interest Rate Hike?

For the first time in 9 years, the Federal Reserve has raised interest rates in a move that could make many loans more expensive for companies and Americans.  Speaking today in Washington D.C., Federal Reserve Janet Yellen discussed the Federal...

16 December 2015

The Greenspan Conundrum

There are many investors and observers who do not think the Fed ought to raise interest rates today.  The Fed's targeted inflation measure, the core PCE deflator, stood at 1.3%, well below the 2% target. They see the fresh sell-off...

16 December 2015

Fed Day: Not Tight, Just Less Easy

The much-awaited Fed meeting is here.  A 25 bp increase in the Fed funds range to 25-50 bp is widely expected.  The near certainty of this contrasts to the high uncertainty of the immediate impact stocks, bonds, and the dollar. ...

15 December 2015

The Fed Meets, but So Do Other Central Banks

The euro made marginal news highs near $1.1060 while sterling and the yen have been confined to yesterday's ranges.  European equities are bouncing off ten-week lows.   The dollar-bloc is firm; the upbeat RBA meetings provided only a short-lived fillip higher. ...

11 December 2015

From the Mind of Mersch

Investors, fellow central bankers, and the media continue to try to make sense of last week's ECB surprise.  We had argued that given the market positioning, especially the dramatic accumulation of speculative short euro positions since the middle of October...

4 December 2015

Do Diverging Monetary Policies Matter?

The prospect that the central banks of the US and the Eurozone will soon make opposing moves on policy rates has allowed financial markets once again to demonstrate their neuroses. Some market participants are expecting exchange rate turmoil – but...