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 "Central Banks"

“It’s (Still) the Inflation, Stupid.”

by Benn Steil and Dinah Walker
inflation and unemployment v targets

Fed officials have been tripping over themselves and each other trying to explain to the world what the right measure of unemployment is and how it should affect what the Fed does.

Using the headline unemployment rate (“U-3”) in official communications hasn’t worked out so well.  Last June, then-Chairman Ben Bernanke suggested that the taper would end with U-3 around 7%; in fact, taper only started with U-3 below that level, at 6.6%.  The FOMC’s December 2012 forward guidance specified a 6.5% threshold for potential rate rises; yet now, with unemployment barely above this, we have NY Fed President Bill Dudley arguing that the guidance should be discarded entirely, as the number is “not providing a lot of value right now in terms of our communications.” Read more »

Was Ukraine Tapered?

by Benn Steil and Dinah Walker
ukraine

For Ukraine’s beleaguered bond market, the seminal event of 2013 was Ben Bernanke’s now-famous taper talk of May 22.  As today’s Geo-Graphic shows, it sent yields soaring to levels they never came back from.

Ukraine was uniquely susceptible to taperitis, having been sporting a current account deficit of 8% of GDP—considerably worse than other big victims such as India, Brazil, Indonesia, Turkey, and South Africa.  Its current political crisis clearly has deep roots, yet it is interesting to speculate as to whether Yanukovych could have held on had it not been for the country’s spiraling debt costs—sent spiraling by the Fed last May. Read more »

“The Euro Crisis Is Dead! Long Live the Euro Crisis!”

by Benn Steil and Dinah Walker
spanish spreads

You’ve got to hand it to Mario Draghi.  Never in the history of central banking has one man accomplished so much with so few words and even less action.

Since having announced the creation of the Outright Monetary Transaction (OMT) program in August 2012, Draghi has had the pleasure of sitting back and watching yield spreads between Spanish and German government bonds fall relentlessly without having to buy a single bond.  Italian spreads have done the same. Read more »

Which Fed Guidance Should We Believe?

by Benn Steil and Dinah Walker
forward guidance

In October 2012, the Fed issued what came to be called a “pledge” to keep its target interest rate near zero through mid-2015.  The market immediately reacted as the Fed wanted, centering expectations on a rate hike in mid-2015.

At its next meeting, the Fed abandoned date-based guidance in favor of data-based guidance: a pledge to keep rates near zero until the unemployment rate fell below 6.5%.  The Fed emphasized, however, that the two pledges were consistent, as it didn’t expect unemployment to fall below that level until mid-2015. Read more »

“It’s the Inflation, Stupid”

by Benn Steil and Dinah Walker
dual mandate

“Based on labor market data alone, the probability of a reduction in the pace of asset purchases has increased,” said Federal Reserve Bank of St. Louis President James Bullard on December 9.  Indeed, Fed watchers have been firmly focused on the improving labor market data in their handicapping of the prospects for an imminent Fed “taper” of its monthly asset purchases, known as “QE3,” which it began back in September 2012. Read more »

ECB Rate Cut a No-Brainer; Also, for Many, a No-Gainer

by Benn Steil and Dinah Walker
inflation and correlation

Back in April, we showed that the eurozone countries most in need of lower corporate borrowing rates benefited only marginally from ECB rate cuts. Today’s Geo-Graphic shows that little has changed in this regard; the financial crisis has clearly done serious and lasting damage to the monetary transmission mechanism in Europe – particularly as it affects Greece, Portugal, Spain, and Italy. Read more »

Paul Krugman’s Baltic Bust—Part III

by Benn Steil and Dinah Walker
Does Paul Krugman Still Believe in “Icelandic Miracles”?Photo Courtesy of Daniel Williams Does Paul Krugman Still Believe in “Icelandic Miracles”?
Photo Courtesy of Daniel Williams

Geo-Graphics posts in July 2010 and 2012 showed that Paul Krugman’s devaluation-driven “Icelandic Miracle” was nothing of the sort – a figment of his having chosen the most favorable possible starting date (Q4 2007) for his Baltic (and Irish) economic-performance comparisons.  Move it forward or back, and Krugman’s story collapses like a warming arctic ice shelf. Read more »

Why the Labor Data Point to a September Fed Taper

by Benn Steil and Dinah Walker
LPFR and discouraged workers

The August “jobs report is an important reminder that all this tapering talk is insane and dangerous,” pronounced Slate economics writer Matt Yglesias, reflecting the consensus of the econo-commentariat.  But as today’s Geo-Graphic shows, the report is actually wholly consistent with a September Fed taper. Read more »

From Greek Spreads to German Votes to . . . Greek Spreads?

by Benn Steil and Dinah Walker
Greece and Germany

The German federal elections on September 22 could be of enormous consequence for Greek solvency – and the future of the eurozone.  Today’s Geo-Graphic shows that Greek solvency may itself be of great consequence to the German elections.

As the figure shows, when the yield spread between German and Greek government bonds falls (and market optimism for Greek solvency rises), support for the small right-of-center, free-market German FDP party rises.  (The FDP is currently part of the Merkel-headed, CDU-led government.)   When that spread rises, however, support for the FDP falls, while support for the left-of-center SPD party rises.  (Support for Merkel’s CDU is invariant to shifts in Greek sentiment.) Read more »