Benn Steil

Geo-Graphics

A graphical take on geoeconomic issues, with links to the news and expert commentary.

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Showing posts for "U.S."

Has the Fed Become More Accommodative than the ECB and BoJ?

by Benn Steil and Emma Smith
Real vs. Nominal Interest Rates

A Japanese interest-rate strategist recently told the Wall Street Journal that “every day is like being Alice in Wonderland” since the Bank of Japan’s foray into negative deposit rates on January 29. Though the yen initially fell, as the BoJ wanted, it reversed course quickly.  The yen has of late been trading near 18-month highs.  What is going on? Read more »

Could China Have a Reserves Crisis?

by Benn Steil and Emma Smith
China reserves

Last summer, U.S. lawmakers were condemning China for pushing down its currency, arguing that it was still “terribly undervalued.” But those days may be long gone.  Chinese and foreigners alike have been stampeding out of RMB, leaving the Chinese central bank struggling to keep its value up and prevent a rout. Read more »

Rate Hikes or Balance Sheet Reductions? How Should the Fed Tighten?

by Benn Steil and Emma Smith
Fed tightening

This post originally appeared in Foreign Affairs online.

On January 27, the U.S. Federal reserve held interest rates steady and, in a modest nod to a market that has been consistently more fearful about the economy than the Fed itself, dropped a line from its December statement saying that the risks to the outlook were “balanced.” Read more »

Our Mini Mac Index Flame-Broils The Economist—Yet Again

by Benn Steil and Emma Smith
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The “law of one price” holds that identical goods should trade for the same price in an efficient market.  But to what extent does it actually hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose. Read more »

As Fed Pulls Back, the ECB and BoJ Add Trillions to Global Liquidity

by Benn Steil and Emma Smith
global liquidity - updated

All eyes and ears are on the Fed as it ponders its first rate increase in nine years.  IMF Managing Director Christine Lagarde fears a rerun of the 2013 “taper tantrum,” or what we have been calling a rate ruckus. Emerging markets are clearly vulnerable to renewed outflows, as capital chases higher yields in the U.S. and drives up the cost of dollar funding abroad. Read more »

Greece and Its Creditors Should Do a Guns-For-Pensions Deal

by Benn Steil and Dinah Walker
Greece NATO Defense Spending

IMF Chief Economist Olivier Blanchard has said that Greece needs to slash pension spending by 1% of GDP in order to reach its new budget targets.  The Greek government continues to resist, arguing that Greeks dependent on pensions have already suffered enough.  But it has yet to put a compelling alternative to its creditors. Read more »

Are Fed Watchers Watching the Wrong People?

by Benn Steil and Dinah Walker
Fed Board FOMC IoER Fed Funds

One effect of the financial crisis was to change how the Fed conducts monetary policy.  This could be long-lasting and important.

Prior to the crisis, the Federal Open Market Committee (FOMC) set a target for the so-called federal funds rate, the interest rate at which depository institutions lend balances to each other overnight.  The New York Fed would then conduct open market operations – buying and selling securities – in order to nudge that rate towards the target.  It did this by affecting the supply of banks’ reserve balances at the Fed, which go up when they sell securities to the Fed and down when they buy them. Read more »

Are China’s RMB Swap Lines an Empty Vessel?

by Benn Steil and Dinah Walker
China US Swaps Argentina

As our recent CFR interactive shows, central bank currency swaps have spread like wildfire since the financial crisis.  In 2006, the Fed had only two open swap lines outstanding, with Canada and Mexico, for just $2 billion and $3 billion, respectively.  At its high point in 2008, the Fed had fourteen open swap lines, with as much as $583 billion drawn. Read more »