The Federal Reserve’s exit from quantitative easing
The question is not whether but when the U.S. Federal Reserve will start to shrink its bloated balance sheet. Just as quantitative easing was a departure from conventional monetary policy, its withdrawal will be a massive economic experiment. Unintended consequences are to be expected.
Opinion: The day Europe goes bankrupt
You may not be able to see it, but Europe’s biggest economies have piled up enormous amounts of pension debt. The European Central Bank’s policy of target credits and quantitative easing has only made things worse. With politicians seemingly determined not to notice, a systemic implosion may be inevitable.
Fed seeks cover in ‘natural’ interest rate
Last summer, commentators began predicting that U.S. monetary policy would no longer aim to avoid deflation and boost growth, but to keep market interest rates close to what economists call the 'natural' rate. The reasoning behind this argument – publicly voiced by Fed Vice Chairman Stanley Fischer, among others – is puzzling. That may be deliberate, as the Fed has plenty of reasons to want a free hand in coming months.
Scenarios for Europe
Europe’s basic problem is a lack of leadership. In 2017 it is unlikely to solve the root problems at the heart of its malaise: excessive regulation, a lack of competition and innovation, weakening internal cohesion and an inability to address crises efficiently. A new generation of politicians may emerge that pushes for more market-driven solutions, but it will take several more years for them to be able to implement their vision, if at all.
Strange bedfellows: Donald Trump and the Fed
President Donald Trump’s incoming administration is about to give the United States Federal Reserve just what it’s been asking for – a significant fiscal stimulus. The problem is what happens next, when inflation expectations, interest rates and the dollar all go up. Tempers will flare in Washington, and the international repercussions could be much worse.
Obama’s monetary diplomacy
The protectionist views of U.S. President-elect Donald Trump are well known, but there has already been a drift in that direction under the Obama administration. One of its favorite tools has been currency monitoring – a way to strong-arm trading partners into adopting tighter monetary policies.
Japan is trying another fiscal stimulus to make Abenomics work. The central bank appears to have given up, admitting in its latest quarterly report that monetary measures will not suffice to get inflation back to the 2 percent target. But the real culprit may be institutional inertia, which has kept the government from following through on promises of structural reform.
Italy’s 50-year bond: an ill omen?
What’s not to like about Italy’s first-ever 50-year bond? October’s brilliantly successful sale may set the template for other eurozone governments. But investors should take note that it was far from a vote of confidence in Europe’s financial and economic prospects.