Some Fed Bond Purchases Spurred Hiring, Central Bank Paper Says

WASHINGTON—At least some of the Federal Reserve’s bond buying in the wake of the 2008 financial crisis bolstered employment, according to a recent paper by staffers at the central bank’s board of governors.

The third round of such purchases, also known as quantitative easing, starting in late 2012, spurred banks with large holdings of mortgage-backed securities to lend more to companies, authors Stephan Luck and Tom Zimmermann found. Shortly thereafter, U.S. counties with such banks saw faster employment growth—up to 0.4 percentage point more per quarter—than counties where banks held fewer mortgage-backed securities.

Employment growth in the two sets of counties was similar for more than 18 quarters before the implementation of QE3, as the program was known.

The findings come as policy makers continue to debate the full impact of the unconventional stimulus measures taken by the Fed after interest rates, reduced to near zero by the end Continue reading "Some Fed Bond Purchases Spurred Hiring, Central Bank Paper Says"

An auction addendum…

So, while we were knee-deep in game theory trying to determine the best way to sell gilts, the Bank of England had some trouble buying them. The BoE's purchase of long-term government debt fell short of target Tuesday, which is noteworthy for plenty of reasons. One is that it's yet another sign of that safe-asset shortage. But the thing is, the competitive bids are intermediated by banks and dealers. And that calls attention to a BIS paper from last month, which shows the results aren't always pretty when economic policy collides with the zero-sum world of trading. Continue reading: An auction addendum…

The Federal Reserve’s 2010 Transcripts — Live Dive

The Federal Reserve released transcripts from its 2010 policy meetings on Friday. Federal Reserve Chairman Ben Bernanke waits before testifying at the House Financial Services Committee hearing on April 20, 2010.
REUTERS/Kevin Lamarque
Join us as we dig into full transcripts of the Federal Reserve’s policy-making Federal Open Market Committee meetings in 2010, released today by the Fed after its customary five-year delay. The recession was over, but the Fed’s work had just begun. The U.S. central bank confronted stubbornly high unemployment and sluggish economic growth at home and financial strains emanating from Europe, where the Greek debt crisis was emerging as a major concern for the eurozone. Who saw what was coming? Who missed the signs? What was the debate about launching a second round of quantitative easing? And what made policy makers laugh? It’s been a long five years. Here’s timeline, cast of characters and other coverage to Continue reading "The Federal Reserve’s 2010 Transcripts — Live Dive"

A Timeline of the Federal Reserve in 2010

 
Federal Reserve Chairman Ben Bernanke walked with Fed Gov. Donald Kohn on Fridayoutside the Jackson Lake Lodge before the opening session of the Kansas City Fed’s annual symposium near Jackson Hole, Wyo. in August 2010.
BLOOMBERG NEWS
The recession was over in 2010, but the Federal Reserve’s work had just begun. The U.S. central bank confronted stubbornly high unemployment and sluggish economic growth at home and financial strains emanating from Europe, where the Greek debt crisis was emerging as a major concern for the eurozone. The Fed held short-term interest rates near zero through the year. After months of internal debate, Chairman Ben Bernanke in November won support for a $600 billion bond-buying program a second round of quantitative easing aimed at stimulating the economy. The Fed also saw personnel changes in 2010, including the departure of Vice Chairman Donald Kohn. He was succeeded by Janet Yellen Continue reading "A Timeline of the Federal Reserve in 2010"

Tokyo’s Test: Policy vs. Demographics

Elderly people work out in the grounds of a temple in Tokyo in September to celebrate Japan’s Respect for the Aged Day. The estimated number of people aged 80 or older in Japan topped 10 million for the first time, the government said.
YOSHIKAZU TSUNO/AFP/GETTY IMAGES
Japan is running an economic experiment with significant implications for the rest of the world, testing whether strong policy can offset weak demographics. The results so far aren’t too encouraging—though it’s too soon to declare defeat. For nearly a quarter century, Japan has been the cautionary tale for advanced economies, enduring persistent stagnation, a debilitating deflation, and a rapidly aging, shrinking population. While Japan is the world’s first “superaged society”—defined as a country where at least 20% of the population is elderly—more than 30 countries will hit that benchmark by 2050. So Japan’s ability to cope is being closely watched elsewhere. For many years, Continue reading "Tokyo’s Test: Policy vs. Demographics"

Deflation Risks May Warrant Radical New Central-Bank Thinking, the IMF’s Chief Economist Says

IMF Economic Counselor Maurice Obstfeld at a press conference at the annual meetings in Lima, Peru, last month. “I worry about deflation globally,” he said in a recent interview. “It may be time to start thinking outside the box.”
STEPHEN JAFFE/IMF VIA GETTY IMAGES
The Bank of Japan and other central banks around the world may need to try radical new easy-money policies to stave off the rising specter of deflation and revive sickly economic prospects, the International Monetary Fund’s new chief economist warns. “I worry about deflation globally,” new IMF Economic Counselor Maurice Obstfeld said in an interview ahead of an annual IMF research conference that focuses this year on unconventional monetary policies and exchange rate regimes. “It may be time to start thinking outside the box.” Weak—and in some cases falling—price growth has plagued Japan, Europe, the U.S. and other major economies since the financial crisis. Continue reading "Deflation Risks May Warrant Radical New Central-Bank Thinking, the IMF’s Chief Economist Says"

Join WSJ Pro Central Banking for a Discussion About the Global Central Banks Outlook

Clockwise from top left, Thorold Barker, Jon Hilsenrath, Brian Blackstone, Jason Douglas and Lingling Wei.
Watch The Wall Street Journal’s Pro Central Banking team as it discusses the global impact of decisions being made by the Federal Reserve, the European Central Bank, the People’s Bank of China and other major central banks. The panel will be moderated by Thorold Barker and will feature Brian Blackstone, Jason Douglas, Jon Hilsenrath and Lingling Wei. The team will help put in perspective central bank developments and offer analysis on what it means for economies around the world. Watch live at http://on.wsj.com/outlookwsjpro and tweet your questions with #WSJPro. Moderator Thorold Barker is Europe, Middle East and Africa editor for The Wall Street Journal and Dow Jones Newswires. In that role, he oversees the combined editorial resources of the newspaper and newswire, as well as the separate publication Financial News. Panelists Continue reading "Join WSJ Pro Central Banking for a Discussion About the Global Central Banks Outlook"

5 Points to Watch in the ECB’s September Meeting

Bloomberg News
Is it time to take the European Central Bank’s stimulus off cruise control? This is the key question heading into Thursday’s policy meeting. The ECB has been buying roughly €60 billion ($67.7 billion) per month in public and private bonds–mostly government bonds–since March. The program, known as quantitative easing or QE, is intended to run at least through September 2016. Until recently, economists expected the ECB to remain steadily on this course, and that any debate on extending the purchases was unlikely until sometime next year. But events in financial markets and China–coupled with lower oil prices–have narrowed that calendar. Annual inflation was 0.2% last month, far below the ECB’s target near 2%. Given the plunge in oil prices last month that has yet to work through the economy, consumer prices are likely to stay super low for months. The ECB can take some comfort from
Continue reading "5 Points to Watch in the ECB’s September Meeting"

ECB’s Mersch Doesn’t Think Germany Prevailed in Greek Bailout Deal

European Central Bank Executive board member Yves Mersch speaks at an event on July 2.
Zuma Press
FRANKFURT—European Central Bank Executive Board member Yves Mersch shot back against the belief that Germany got its way in the recent bailout deal with Greece. “I don’t like it when it is said that Germany prevailed,” said Mr. Mersch on a panel in Frankfurt. He said that according to French newspapers, the French won “and if one reads international newspapers, it’s not so clear who prevailed,” he said. The comments come one day after Greece’s eurozone creditors agreed a third bailout deal for the country provided that Greece pass a number of reforms by Wednesday. In his prepared remarks, Mr. Mersch, praising various accommodative monetary policies the ECB has undertaken, said the eurozone economy is slowly but steadily improving. He said this was “also thanks to our recent monetary policy measures. These measures Continue reading "ECB’s Mersch Doesn’t Think Germany Prevailed in Greek Bailout Deal"

ECB’s Mersch Doesn’t Think Germany Prevailed in Greek Bailout Deal

European Central Bank Executive board member Yves Mersch speaks at an event on July 2.
Zuma Press
FRANKFURT—European Central Bank Executive Board member Yves Mersch shot back against the belief that Germany got its way in the recent bailout deal with Greece. “I don’t like it when it is said that Germany prevailed,” said Mr. Mersch on a panel in Frankfurt. He said that according to French newspapers, the French won “and if one reads international newspapers, it’s not so clear who prevailed,” he said. The comments come one day after Greece’s eurozone creditors agreed a third bailout deal for the country provided that Greece pass a number of reforms by Wednesday. In his prepared remarks, Mr. Mersch, praising various accommodative monetary policies the ECB has undertaken, said the eurozone economy is slowly but steadily improving. He said this was “also thanks to our recent monetary policy measures. These measures Continue reading "ECB’s Mersch Doesn’t Think Germany Prevailed in Greek Bailout Deal"

ECB’s Mersch Doesn’t Think Germany Prevailed in Greek Bailout Deal

European Central Bank Executive board member Yves Mersch speaks at an event on July 2.
Zuma Press
FRANKFURT—European Central Bank Executive Board member Yves Mersch shot back against the belief that Germany got its way in the recent bailout deal with Greece. “I don’t like it when it is said that Germany prevailed,” said Mr. Mersch on a panel in Frankfurt. He said that according to French newspapers, the French won “and if one reads international newspapers, it’s not so clear who prevailed,” he said. The comments come one day after Greece’s eurozone creditors agreed a third bailout deal for the country provided that Greece pass a number of reforms by Wednesday. In his prepared remarks, Mr. Mersch, praising various accommodative monetary policies the ECB has undertaken, said the eurozone economy is slowly but steadily improving. He said this was “also thanks to our recent monetary policy measures. These measures Continue reading "ECB’s Mersch Doesn’t Think Germany Prevailed in Greek Bailout Deal"

Draghi: ECB Didn’t Give Privileged Information to Fund Managers

European Central Bank President Mario Draghi at the G7 finance ministers and central bankers meeting in May. REUTERS
fabrizio bensch/Reuters
FRANKFURT–European Central Bank President Mario Draghi defended his institution against criticisms that a board member divulged market-sensitive information to a gathering that included hedge fund managers at a speech last month 12 hours before the remarks were made public, an incident that raised questions about the bank’s communications policies. Mr. Draghi wrote in a letter to the European Ombudsman dated Wednesday, and published on the ECB’s website Thursday, that the frontloading of bond purchases in the ECB’s quantitative easing program, which executive board member Benoit Coeuré announced at a private event on May 18, was already visible in the markets. “The start of the moderate frontloading of purchases in May (and to be continued in June) was already clearly visible, and thus publicly available information,” wrote Mr. Draghi, Continue reading "Draghi: ECB Didn’t Give Privileged Information to Fund Managers"

Bond-Market Volatility Reflects Reality, Not Regulation

A world of low yields and heightened risk aversion is one in which volatility should be higher, Greg Ip says.
PATRICIA DE MELO MOREIRA/AFP/GETTY IMAGES
Bonds are supposed to be boring, but this year they’ve been anything but. After plumbing the lowest levels in memory earlier this year, German yields have skyrocketed, and yields around the world have largely followed suit. Market participants complain that the volatility is aggravated by illiquidity, that is the absence of many buyers and sellers willing to transact at a given yield and price, for which they blame increased regulations. Stiffer capital regulations make it expensive for banks to hold big inventories of bonds for trading with customers, and the Dodd-Frank law’s “Volcker rule” bans banks from certain types of proprietary bond-trading. It is not easy to apportion all the drivers of something as complex as the bond market, but regulations do not appear to
Continue reading "Bond-Market Volatility Reflects Reality, Not Regulation"

The Fed’s Zero-Rate Policy Boosts Inequality, Nobel Economist Joseph Stiglitz Says

Joseph Stiglitz, Nobel prize-winning economist and professor of economics at Columbia University, says the Fed’s aggressive monetary policies may have further boosted U.S. inequality.
SIMON DAWSON/BLOOMBERG NEWS
The Federal Reserve’s prolonged policies of near-zero interest rates and asset purchases have further widened the already large gap between the rich and poor in the United States, says Nobel prize-winning economist and Columbia University professor Joseph Stiglitz. “Contrary to the presumption in the nineteenth century, where lower interest rates favored debtors over creditors and thus increased equality, we show that…lower interest rates may actually increase inequality,” Mr. Stiglitz, a long-time inequality scholar, argues in the fourth of a four-part working paper series published by the National Bureau of Economic Research. That’s because rich individuals tend to hold much of their wealth in a stock market that benefits disproportionately from such policies, which included purchases of government and mortgage bonds, Continue reading "The Fed’s Zero-Rate Policy Boosts Inequality, Nobel Economist Joseph Stiglitz Says"

5 Points to Watch in the ECB’s June Presser

European Pressphoto Agency
The European Central Bank meets Wednesday against a backdrop of a slowly improving economy and rising consumer prices, as the bank’s quantitative easing program gains traction. That doesn’t mean ECB President Mario Draghi will be in for an easy time at his post-meeting press conference, where he will likely face questions about the ECB’s willingness to keep propping up Greek banks, the inflation outlook in Europe and the recent disclosure of market-sensitive information by a top ECB board member to an audience that included hedge funds and investors. Here are five things to watch for Wednesday. #1: How much patience does the ECB have for Greece? As Greece’s talks with its international creditors drag on, the country’s banks have become increasingly dependent on ECB funds amid deposit outflows. If Athens starts missing payments to the International Monetary Fund this month, the ECB’s support of Greece — and
Continue reading "5 Points to Watch in the ECB’s June Presser"

Don’t Sweat the Fed: A U.S. Rate Increase Won’t Unsettle Markets

The Federal Reserve building in Washington, D.C.
Bloomberg News
The Federal Reserve is set to raise interest rates by the end of the year. Even the first quarter growth wobble in the U.S. won’t prevent the seemingly inevitable. Asian central bankers and investors alike are looking ahead with trepidation. After all, the shock of the “taper tantrum” in 2013, which sent global interest rates soaring and rattled currencies across the region, still sits deep. The episode was triggered by the mere mention that the Fed might begin to reduce the size of its monthly asset purchase–or gently ease up on the accelerator. No wonder, then, that many are getting nervous at the prospect of the Fed actually hitting the brakes by raising its policy rate in due course. India’s central bank governor, Raghuram Rajan, worries about potential damage to emerging markets. Fear not. The first rate increase by
Continue reading "Don’t Sweat the Fed: A U.S. Rate Increase Won’t Unsettle Markets"

When Fed Policy Hits Emerging Economies, Some Do Better Than Others. A New Paper Suggests Why

An investor looks at stock information at a securities firm in Shanghai late last year. Emerging market economies with stronger fundamentals are better positioned to weather policy spillovers, according to new Federal Reserve research. 
JOHANNES EISELE/AFP/GETTY IMAGES
What happens in the U.S. doesn’t always stay in the U.S. when it comes to monetary policy. But emerging economies may be better positioned to weather spillovers from the Federal Reserve’s actions if they start out on a strong foundation, according to a recent analysis by central bank economists. “Taken at face value, these results suggest that policies to further strengthen economic fundamentals could go a long way to help the [emerging market economies] mitigate any disruptive effects from eventual normalization of monetary policy in the advanced economies,” Shaghil Ahmed, Brahima Coulibaly and Andrei Zlate wrote in a discussion paper released last month by the Fed board of Continue reading "When Fed Policy Hits Emerging Economies, Some Do Better Than Others. A New Paper Suggests Why"

ECB’s Hansson Warns Stimulus May Dampen Reform Drive

TALLINN, Estonia—Large-scale bond purchases by the European Central Bank may spur governments to build up debt without taking needed steps to overhaul their economies, a member of the European Central Bank’s governing council said Tuesday. “It is no secret that I did not support the plan to buy government bonds. Although there are first signs of modest success, we have to be aware of the risks,” Ardo Hansson, ECB governing council member and governor of euro member Estonia’s central bank, told the national parliament. He added that he was mostly talking about so-called moral hazard risks: in a situation where interest rates are low, some governments may feel less motivated to go through with reforms that are necessary to ensure long-term economic growth. The ECB announced a €1.1 trillion ($1.2 trillion) bond purchase program in January and began implementing it in March with the aim of bringing annual Continue reading "ECB’s Hansson Warns Stimulus May Dampen Reform Drive"

Grand Central: ECB Turns Up Heat on Governments

The Wall Street Journal’s Daily Report on Global Central Banks for Friday, May 22, 2015: Sign up for the newsletter: http://on.wsj.com/grandcentralsignup BLACKSTONE’S TAKE: : ECB TURNS UP HEAT ON GOVERNMENTS 
European Pressphoto Agency
It’s hard to be a pessimist in Sintra this weekend. The sun is out and the temperatures warm at the site of the European Central Bank’s annual economic conference—now in its second year—near Portugal’s western coast. It’s essentially the ECB’s version of the Kansas City Federal Reserve’s more famous Jackson Hole conference that occurs in the late summer. Mario Draghi set Friday’s sessions—dedicated to unemployment and inflation–off on a guardedly upbeat tone,
Continue reading "Grand Central: ECB Turns Up Heat on Governments"

India’s Central Bank Chief Wants More Central-Bank Coordination

NEW YORK–Reserve Bank of India governor Raghuram Rajan said Tuesday that global financial institutions like the International Monetary Fund need to do a better job at mediating between the policies pursued by the world’s major central banks. Gov. Rajan said the lack of an effective, cooperative safety net has the potential to push the world toward a succession of crises, as countries seek to stimulate domestic demand by cutting interest rates and devaluing their currencies in turn, a move that pushes others to do the same. “The current non-system in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector,” Gov. Rajan said in the text of a speech given before the Economic Club of New York. “It is a problem of collective action.” He said in his speech that while he understands a central bank Continue reading "India’s Central Bank Chief Wants More Central-Bank Coordination"