Tag Archives: central banking

Fed raises rates — will other central banks follow?

Source: Ludwig von Mises Institute
by Ryan McMaken

“Last week, the Federal Reserve announced an increase in the Federal Funds rate to 1.25 percent. The last time the target rate reached so high was in September of 2008, when the rate was 2.0 percent. In October of that year, the target rate fell to 1.0 percent, and was moved down to 0.25 percent in December. It remained at 0.25 percent for the next 83 months. This week’s rate increase was the third increase since December 2016, when the Fed increased the rate from 0.5 percent to 0.75 percent. Compared to the last seven years, this policy looks hawkish by comparison. On the other hand, compared to the 1990s — which were at the time seen as an era of low rates — current policy remains remarkably accommodative.” (06/19/17)


Central banks are driving many to cryptocurrencies

Source: Ludwig von Mises Institute
by Demelza Hays

“Two years ago, Bitcoin was considered a fringe technology for libertarians and computer geeks. Now, Bitcoin and other cryptocurrencies, such as Ethereum, are gaining mainstream adoption. However, mainstream adoption has been propelled by financial speculation instead of by demand for a privately minted and deflationary medium of exchange. After the Fed’s rate hike this week, Bitcoin and alternative cryptocurrencies, such as Ethereum and Dash dropped in value instantly. Bitcoin, for example, dropped by approximately 16% in value while other coins dropped by approximately 25%. However, Bitcoin’s price recovered to the previous high within 18 hours. The reaction of the cryptomarket to the Federal Reserve announcement provides evidence that cryptocurrencies are seen as a safe-haven investment during times of significant fiat currency dilution.” (06/16/17)


Canadian interest rates set to rise?

Source: Mises Canada
by Caleb McMillan

“Is the Bank of Canada going raise its overnight benchmark rate? Since rising interest rates are decreed by the central bank, the real scarcity of capital in which major financial institutions can borrow and lend out overnight amongst themselves is unknown. Disconnected from any real savings, we expect the Bank of Canada to manually raise rates when the going gets good. This is flawed thinking. Clearly, the rag-tag team at the BoC have confused cause and effect once again. Through experience and logic, the idea that central banks can provide a free lunch is rebuffed by a hefty dose of reality. You need capital to have capitalism. Savings and production come before consumption. This is a priori true.” (06/14/17)


Fed raises rates, unveils balance sheet cuts in sign of confidence

Source: Reuters

“The Federal Reserve raised interest rates on Wednesday for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year, signaling its confidence in a growing U.S. economy and strengthening job market. In lifting its benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent and forecasting one more hike this year, the Fed seemed to largely brush off a recent run of mixed economic data. The U.S. central bank’s rate-setting committee said the economy had continued to strengthen, job gains remained solid and indicated it viewed a recent softness in inflation as largely transitory.” (06/14/17)


Fed sets process to wind down $4.5 trillion balance sheet

Source: CNBC

“Federal Reserve officials appear to be in sync on how they plan to unravel the mammoth stimulus implemented during the financial crisis. The Fed is holding a $4.5 trillion portfolio, known as its ‘balance sheet,’ of mostly government debt it accumulated in the years after the crisis. Until now, the central bank has been taking the proceeds it receives from maturing debt and reinvesting them in more bonds. In recent days, officials have been indicating that the balance sheet will be unwound, likely starting later in the year, raising questions from investors about how the process will work and what impact it will have.” (05/24/17)


Fed keeps rates on hold

Source: Bloomberg

“Federal Reserve officials remained on track to gradually tighten monetary policy after leaving interest rates unchanged and signaling they were not alarmed by recent U.S. economic weakness. ‘The committee views the slowing in growth during the first quarter as likely to be transitory’ the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington. ‘Near-term risks to the economic outlook appear roughly balanced.’ U.S. central bankers were unusually explicit in their statement, indicating that a disappointing first quarter, in which the economy grew at an annualized rate of 0.7 percent, would not knock the committee off its plan to raise rates two more times this year after a hike in March.” (05/03/17)


Central banks’ obsession with price stability leads to economic instability

Source: Ludwig von Mises Institute
by Frank Shostak

“For most economists the key factor that sets the foundation for healthy economic fundamentals is a stable price level as depicted by the consumer price index. According to this way of thinking, a stable price level doesn’t obscure the visibility of the relative changes in the prices of goods and services, and enables businesses to see clearly market signals that are conveyed by the relative changes in the prices of goods and services. Consequently, it is held, this leads to the efficient use of the economy’s scarce resources and hence results in better economic fundamentals.” (04/28/17)


Why all central banks’ e-currencies will fail horribly

Source: Bitcoin.com
by Datavetaren

“From time to time I hear ‘central banks could issue e-currencies on blockchains!’ Before dwelling on the details on why that isn’t possible, let’s consider an ‘Einsteinian thought experiment.’ Let’s begin by asking ourselves the question: How do we know that a computer system is secure and not being tampered with?” (04/27/17)


Accommodative monetary police is encroaching on fiscal policy

Source: Cobden Centre

“We believe that the ECB is presently using monetary policy in effect to conduct fiscal, as well as monetary policy. Elected politicians should be up in arms; that they are not would imply either that they do not understand this or that they simply accept it. This may provide an interesting pointer as to the future of the EU itself.” (04/21/17)


The Fed’s inflation fixation

Source: Independent Institute
by Randall Holcombe

“Despite arguments about the perils of deflation, the United States had a long-term decline in prices from 1865 until the Federal Reserve was established in 1913, at a time in which the industrializing economy was growing more rapidly than it ever had before. As to the argument that people will wait to purchase goods when they anticipate falling prices, computer prices have been falling for half a century, along with the prices of other high-tech goods, and those markets have seen rapid growth. Deflation is not bad for the economy, and deflation that represents increases in productivity produces prices that give a more accurate representation of real cost of goods and services. There is no good reason for the Fed to deliberately try to create inflation.” (04/19/17)