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"

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 »

Carney’s Forward Garble

by Benn Steil and Dinah Walker
unemployment targets

The Bank of England’s dramatic new “forward guidance” policy, announced on August 7 with great fanfare, struck the markets like a soggy noodle – the FTSE fell, gilts fell, and sterling rose, none of which could the Bank have wanted to see.

Why the disappointment?  Others have pointed to the multiple caveats and exit clauses, but we would highlight something much more tangible: the pledge to keep interest rates super-low at least until unemployment fell to 7% was meaningless, as 7% is nearly two full percentage points over what the Bank considers to be the long-term equilibrium rate of UK unemployment.  This is like a football coach pledging to keep throwing the football until his team is down by less than 50 points; it tells the defense nothing it didn’t already know. Read more »

Will Portugal Bring Down the Spanish Banking Sector?

by Benn Steil and Dinah Walker
spain exposure to portugal

In its recent evaluation of the Greek bailout program, the IMF revealed that the euro area leadership sought to delay a Greek sovereign debt restructuring back in 2010 because of contagion fears; that is, Greece’s creditors might get sucked into the bailout vortex. Among eurozone national banking systems, France had the largest exposure. At its peak in the second quarter of 2008, France’s exposure to Greece totaled $86 billion. That exposure has since plummeted, partly because French banks took advantage of the ECB’s Securities Market Programme (SMP) during 2010-11 to fob off Greek bonds, effectively forcing a eurozone mutualization of the debt. SMP was terminated in September 2012. Read more »

Fed Taper Talk Jolts Rate Expectations for 2015

by Benn Steil and Dinah Walker
taper expectations

From September 2012 to March of this year, the Fed had been remarkably successful at guiding the market’s expectations for future interest rates through publication of its unemployment projections.  As today’s Geo-Graphic shows, when the Fed lowered its unemployment projection for a given future date the market raised its projection for interest rates around that date proportionately.  It was a tightly correlated dance. Read more »