Post by jeffolie on Nov 26, 2013 8:44:59 GMT -6
The motivation by the CBs remains to push savers into risk assets and out of savings as repeating the Japanese 23+ years of the same impact for ZIRP ... negative rates on savers ... CBs continue to build asset bubbles in capital investments plus favored hobbies such as fine art, rare cars while most common Americans suffer declining real adjusted household median income aka screwflation as slowly destroying life styles and the middle class
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Nov. 25, 2013
Fed’s reserve hint may help ECB rate cut to negative territory
Commentary: Consensus on trans-Atlantic rates is still fragmented
MarketWatch
The U.S. Federal Reserve has offered the European Central Bank important indirect support promoting the euro bloc’s likely destination of negative interest rates on bank deposits at the central bank in early 2014.
Amid the welter of partially contradictory statements on monetary policy from U.S. and European officials in past weeks, a still-fragmentary consensus is gradually emerging on the likely path of trans-Atlantic interest rates in coming months.
News that the Fed is considering cutting the interest it pays on bank reserves, as an offset to potential slowing of asset purchases through quantitative easing (QE), forms a significant part of the equation.
In effect the Fed is providing a substantial bridgehead to allow the ECB to cross into negative territory. According to the minutes of its October meeting, released last week, most officials on the Federal Open Market Committee thought such a move “could be worth considering at some stage.”
The move would offer a means of displaying continued easy monetary policy even after the so-called tapering of the Fed’s $85 billion-a-month asset purchases.
In the delicate weeks before the probable replacement of Fed chief Ben Bernanke by Janet Yellen at the end of January, this would be an elegant way of balancing hawkish and dovish QE tendencies among FOMC members. Some analysts think that the Fed could announce such a slowdown as early as next month, depending on the strength of U.S. employment data in the next few weeks.
An important factor behind the ECB’s controversial 0.25 percentage point cut in its main interest rate to 0.25% on Nov. 7 was uncertainty about U.S. monetary policy. If the Fed started tapering in December, then it was surmised that this would have made the long-delayed ECB rate cut still less likely. This factor strengthened the resolve of the majority of the ECB council on Nov. 7 to pre-empt any Fed action by deciding to reduce interest rates a month earlier than a substantial minority of the ECB council would have liked.
If, as now appears likely, the Fed decides to couple the start of “tapering” with a cut in interest paid on reserves, that would ease the way towards a further easing of ECB monetary policy with a long-discussed move in the first few months of 2014 to set negative interest rates on bank reserves held at the ECB.
In view of widespread fears in Europe about the effects of austerity on euro member economies, and in particular about the threat of deflation in some countries, the ECB is conspicuously keeping options open about substantial further easing. There is considerable concern about the rise of anti-euro parties in next May’s European parliament elections.
Leading officials have been thinking aloud about the possibility of across-the-board QE in Europe, but the issue remains technically difficult and politically enormously sensitive. Interest rate cuts — including a move into negative territory for the deposit rate as well as a landmark cut (not necessarily at the same time) to zero for the main ECB refinancing rate — still seem more likely than a decision on QE.
The lack of ECB preparedness for across-the-board QE was voiced 4½ years ago by then-ECB board member Lorenzo Bini Smaghi. He set out six reasons why the ECB seemed unlikely to adopt large-scale purchases of government bonds as decided by the Federal Reserve and Bank of England. Since then, not much has changed.
The reasons included doubts whether an increase in the monetary base really would result in easier monetary conditions; whether banks would actually pass on the additional liquidity in the context of general deleveraging; whether inflationary expectations would rise; and whether central banks would suffer large losses by buying a high prices and selling at low ones.
Bini Smaghi hinted at the single most important reason for the ECB’s reluctance: it could have a disproportionately large and positive impact on the bond markets of the most heavily indebted countries and be seen as granting “privileged access” for the most troubled governments.
With political decision-making in Europe becalmed by confusion over the composition and policies of the next German government, the ECB is once again left alone as the most effective economic decision-maker in Europe.
On Sept. 16, a week before the inconclusive German general election on Sept. 22, I predicted difficult negotiations in Berlin on a Grand Coalition, bringing “weeks if not months of uncertainty and volatility in German politics — and no clear-cut end to the doubts overhanging economic and monetary union,” with “Italian-style bickering over forming a new German government.” Two months on, this is a pretty fair summing up of the present situation.
Political sensitivities over a potential move to European QE have been exacerbated by continued doubts about whether the German Constitutional Court will give backing to the planned Bundesbank involvement in a key ECB policy instrument. This is the ECB’s not-yet-tested program of OMT asset purchases for selected euro members. The Court has pointedly delayed until next year announcing its judgement on the matter. The Karlsruhe body is loath to announce a negative view on the issue at a time when Germany has no more than a caretaker government in charge.
Underlining the deep waters into which the ECB is wading, Mario Draghi, the ECB president, last week criticized what he termed “nationalistic” attacks on the latest ECB rate cut (above all from German commentators). Draghi declared that members of the ECB council are acting as Europeans rather than representatives of individual countries.
This is indeed the official explanation of the way that the ECB is taking its decisions. But many German analysts believe that the latest ECB action has been swayed by the need to restore the health of banks and governments from the indebted European periphery, rather than by general desire for monetary and financial stability.
www.marketwatch.com/story/feds-hint-may-help-ecb-rate-cut-to-negative-territory-2013-11-25?link=mw_home_kiosk
=================================
Nov. 25, 2013
Fed’s reserve hint may help ECB rate cut to negative territory
Commentary: Consensus on trans-Atlantic rates is still fragmented
MarketWatch
The U.S. Federal Reserve has offered the European Central Bank important indirect support promoting the euro bloc’s likely destination of negative interest rates on bank deposits at the central bank in early 2014.
Amid the welter of partially contradictory statements on monetary policy from U.S. and European officials in past weeks, a still-fragmentary consensus is gradually emerging on the likely path of trans-Atlantic interest rates in coming months.
News that the Fed is considering cutting the interest it pays on bank reserves, as an offset to potential slowing of asset purchases through quantitative easing (QE), forms a significant part of the equation.
In effect the Fed is providing a substantial bridgehead to allow the ECB to cross into negative territory. According to the minutes of its October meeting, released last week, most officials on the Federal Open Market Committee thought such a move “could be worth considering at some stage.”
The move would offer a means of displaying continued easy monetary policy even after the so-called tapering of the Fed’s $85 billion-a-month asset purchases.
In the delicate weeks before the probable replacement of Fed chief Ben Bernanke by Janet Yellen at the end of January, this would be an elegant way of balancing hawkish and dovish QE tendencies among FOMC members. Some analysts think that the Fed could announce such a slowdown as early as next month, depending on the strength of U.S. employment data in the next few weeks.
An important factor behind the ECB’s controversial 0.25 percentage point cut in its main interest rate to 0.25% on Nov. 7 was uncertainty about U.S. monetary policy. If the Fed started tapering in December, then it was surmised that this would have made the long-delayed ECB rate cut still less likely. This factor strengthened the resolve of the majority of the ECB council on Nov. 7 to pre-empt any Fed action by deciding to reduce interest rates a month earlier than a substantial minority of the ECB council would have liked.
If, as now appears likely, the Fed decides to couple the start of “tapering” with a cut in interest paid on reserves, that would ease the way towards a further easing of ECB monetary policy with a long-discussed move in the first few months of 2014 to set negative interest rates on bank reserves held at the ECB.
In view of widespread fears in Europe about the effects of austerity on euro member economies, and in particular about the threat of deflation in some countries, the ECB is conspicuously keeping options open about substantial further easing. There is considerable concern about the rise of anti-euro parties in next May’s European parliament elections.
Leading officials have been thinking aloud about the possibility of across-the-board QE in Europe, but the issue remains technically difficult and politically enormously sensitive. Interest rate cuts — including a move into negative territory for the deposit rate as well as a landmark cut (not necessarily at the same time) to zero for the main ECB refinancing rate — still seem more likely than a decision on QE.
The lack of ECB preparedness for across-the-board QE was voiced 4½ years ago by then-ECB board member Lorenzo Bini Smaghi. He set out six reasons why the ECB seemed unlikely to adopt large-scale purchases of government bonds as decided by the Federal Reserve and Bank of England. Since then, not much has changed.
The reasons included doubts whether an increase in the monetary base really would result in easier monetary conditions; whether banks would actually pass on the additional liquidity in the context of general deleveraging; whether inflationary expectations would rise; and whether central banks would suffer large losses by buying a high prices and selling at low ones.
Bini Smaghi hinted at the single most important reason for the ECB’s reluctance: it could have a disproportionately large and positive impact on the bond markets of the most heavily indebted countries and be seen as granting “privileged access” for the most troubled governments.
With political decision-making in Europe becalmed by confusion over the composition and policies of the next German government, the ECB is once again left alone as the most effective economic decision-maker in Europe.
On Sept. 16, a week before the inconclusive German general election on Sept. 22, I predicted difficult negotiations in Berlin on a Grand Coalition, bringing “weeks if not months of uncertainty and volatility in German politics — and no clear-cut end to the doubts overhanging economic and monetary union,” with “Italian-style bickering over forming a new German government.” Two months on, this is a pretty fair summing up of the present situation.
Political sensitivities over a potential move to European QE have been exacerbated by continued doubts about whether the German Constitutional Court will give backing to the planned Bundesbank involvement in a key ECB policy instrument. This is the ECB’s not-yet-tested program of OMT asset purchases for selected euro members. The Court has pointedly delayed until next year announcing its judgement on the matter. The Karlsruhe body is loath to announce a negative view on the issue at a time when Germany has no more than a caretaker government in charge.
Underlining the deep waters into which the ECB is wading, Mario Draghi, the ECB president, last week criticized what he termed “nationalistic” attacks on the latest ECB rate cut (above all from German commentators). Draghi declared that members of the ECB council are acting as Europeans rather than representatives of individual countries.
This is indeed the official explanation of the way that the ECB is taking its decisions. But many German analysts believe that the latest ECB action has been swayed by the need to restore the health of banks and governments from the indebted European periphery, rather than by general desire for monetary and financial stability.
www.marketwatch.com/story/feds-hint-may-help-ecb-rate-cut-to-negative-territory-2013-11-25?link=mw_home_kiosk