Tag Archives: central banking

The Fed’s fantasy on neutral interest rates

Source: Ludwig von Mises Institute
by Frank Shostak

“In her testimony to the Congressional Economic Committee on November 29, 2017, the Fed Chair Janet Yellen said that the neutral rate appears to be quite low by historical standards. From this, she concluded that the federal funds rate would not have to increase much to reach a neutral stance. The neutral rate currently appears to be quite low by historical standards, implying that the federal funds rate would not have to rise much further to get to a neutral policy stance. If the neutral level rises somewhat over time, as most FOMC participants expect, additional gradual rate hikes would likely be appropriate over the next few years to sustain the economic expansion.” (12/11/17)


It’s more than just the absence of acceleration, it’s the synchronization where there should be none

Source: Cobden Centre
by Jeffrey P Snider

“According to the latest ECB figures, as of yesterday total ‘liquidity’ added to the European banking system for that central bank’s ongoing monetary ‘stimulus’ was just shy of €2 trillion. The outstanding balance in the core current account (reserves) held on behalf of the banking system was €1.296 trillion. In the deposit account, banks are holding €686 billion at -40 bps in ‘yield.’ To create all these euro-denominated numbers, the European Central Bank through its constituent National Central Banks (NCB) has purchased €2.21 trillion …. The numbers given above don’t appear to balance because of the way all this stuff is accounted for.” (12/06/17)


The Fed could be tightening more than it realizes

Source: Cobden Centre
by Benn Steil

“Ten years ago, before the collapse of Lehman Brothers rocked global financial markets, the Fed’s balance sheet stood at $925 billion — mostly U.S. Treasuries. After fifty-nine months of asset purchases to push down longer-term interest rates, it had ballooned to a peak of $4.5 trillion, including nearly $1.8 trillion in mortgage securities, in October 2014. In October of this year, the Fed at last began a slow slimming-down of the balance sheet, allowing $10 billion in maturing securities to roll off without reinvesting the proceeds. All else being equal, this represents a tightening of monetary policy, as it tends to push up longer-term (10-year) market interest rates.” (11/21/17)


Is there any way out of the ECB’s trap?

Source: Cobden Centre
by Daniel Lacalle

“The ECB faces the Devil’s Alternative that Frederick Forsyth mentioned in one of his books. All options are potentially riskly. Mario Draghi knows that maintaining the so-called stimuli involves more risks than benefits, but also knows that eliminating them could make the eurozone deck of cards collapse. Despite the massive injection of liquidity, he knows that he can not disguise political risks such as the secessionist coup in Catalonia. The Ibex reflects this, making it clear that the European Central Bank does not print prosperity, it only puts a floor to valuations. The ECB wants a weak euro. But it is a game of juggling to pretend a weak euro and at the same time a strong economy.” (11/15/17)


What Hayek tells us about the link between ultra-loose monetary policy and political instability

Source: Cobden Centre
by Professor Gunther Schnabl

“The European Central Bank will increase the overall volume of its bond purchase program to 2.550.000.000.000 euros by September 2018. The main refinancing rate will remain at zero. Mario Draghi has stressed that this policy shall continue until inflation picks up sustainably (which is unlikely to happen in the foreseeable future). The works of Friedrich August von Hayek (1931, 1944, 1976) help to explain why the tremendous monetary expansion is increasingly causing growing economic and political instability in Europe.” (11/08/17)


Yellen’s poor legacy — and Powell’s challenges

Source: Cobden Centre
by Daniel Lacalle

“The appointment of Jerome Powell as the new chair of the Federal Reserve must be interpreted by the markets as a sign of continuity. He is not the hawk that many market participants feared and neither holds a dovish and dangerous stance. Yellen’s mandate has been widely criticized by many investors and economists. She inherited an economy where unemployment was at the Fed’s target levels, inflation was picking up and growth was strengthening, and yet she unnecessarily delayed raising rates and reducing the balance sheet for too long.” (11/07/17)


Trump nominates Powell to chair Fed

Source: Charlotte Observer

“President Donald Trump on Thursday announced his choice of Federal Reserve board member Jerome Powell to be the next chairman of the nation’s central bank, succeeding Janet Yellen, the first woman to hold the position. Trump made the announcement in a Rose Garden ceremony with Powell standing next to him. Trump said Powell had earned the ‘respect and admiration of his colleagues’ during his five years on the Fed’s seven-member board. Trump also praised Yellen, whom he decided not to nominate for a second term, as a ‘wonderful woman who has done a terrific job.'” (11/02/17)


Fed stands pat on interest rates, offers upbeat assessment of economy

Source: Los Angeles Times

“Federal Reserve officials on Wednesday provided an upbeat account of the economy, saying that economic activity has been ‘rising at a solid rate despite hurricane-related disruptions.’ That bullish assessment will reinforce expectations that the Fed — while it held interest rates steady this week, as expected — will nudge up its benchmark rate next month. … [Janet] Yellen’s term as chair expires in early February, and President Trump is not likely to nominate her for a second term. Instead, Trump on Thursday is expected to name Jerome Powell, a member of the Fed Board of Governors, to succeed Yellen.” (11/01/17)


Go with Taylor, president Trump

Source: Mises Canada

“As the kids say, boy, he ‘bout to do it! President Trump has indicated he’ll soon make his pick for a new Federal Reserve chairperson to replace current Chair Janet Yellen. Early reports suggest Jerome Powell, a member of the Fed’s Board of Governors, is favorited. Trump is also considering Stanford University economist John Taylor and, the safest of options, keeping Yellen in place. Powell is the top choice of Treasury Secretary Steven Mnuchin, an automatic red flag for anyone suspicious of the coke-fueled money orgy known as Wall Street. Should Powell get the job, you’ll be sure to hear $1,000 bottles of champagne popping in Goldman Sachs highrises from miles away. Yellen is more of the same.” (10/30/17)


Vietnam: Central bank bans cryptocurrencies

Source: Coin Telegraph

“Vietnam’s central bank, State Bank of Vietnam has declared the use of digital currencies in the country as illegal. The central bank also announced that it will impose a fine on anyone caught utilizing the cryptocurrencies starting early 2018. Based on the new monetary law issued by the bank that is scheduled to go into effect during the first quarter of 2018, Bitcoin and other virtual cryptocurrencies are already considered as illegal and their use will be prohibited in the country. The law also states that the only authorized payment methods in the country are those issued or controlled by the State Bank of Vietnam.” (10/29/17)