price stability

Monetary Policy Statement From the Federal Reserve

March 21, 2013 by NewsMaker Leave a Comment

Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. Inflation has been running somewhat below the committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability. The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate. The committee continues to see downside risks to the economic outlook. The committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The committee will closely monitor incoming information on economic and financial developments in coming months. The committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In determining the size, pace, and composition of its asset purchases, the committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the committee decided to keep the target range for the federal rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6 ½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

In determining how long to maintain a highly accommodative stance of monetary policy, the committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the F.O.M.C. monetary policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Article source: http://www.nytimes.com/2013/03/21/business/economy/text-of-the-federal-reserves-monetary-policy-statement.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: federal open market committee, mortgage markets, price stability

Text of the Federal Reserve’s Monetary Policy Statement

March 20, 2013 by NewsMaker Leave a Comment

Article source: http://www.nytimes.com/2013/03/21/business/economy/text-of-the-federal-reserves-monetary-policy-statement.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: energy prices, maximum employment, price stability

German Central Bank Doubles Reserves

March 12, 2013 by NewsMaker Leave a Comment

The Bundesbank said it raised its risk provisions, money it sets aside to cover losses such as a default on euro zone bond holdings, to 14.4 billion euros, or $18.7 billion, from 7.7 billion euros a year earlier. The bank’s profit for the year, which it transfers to the German government, was little changed, rising to 664 million euros from 643 million euros.

Jens Weidmann, the Bundesbank president, said the increase in loss reserves “takes appropriate account of the risks on the Bundesbank’s balance sheet.”

But the decision to set aside further billions may also be interpreted as a verdict by Mr. Weidmann on the European Central Bank’s measures he has long criticized, such as purchases of Italian and Greek government bonds to try to keep those countries’ borrowing costs under control.

Mr. Weidmann, a member of the European bank’s governing council, has played the role of Cassandra as Mario Draghi, the bank’s president, has led a vast expansion of the central bank’s powers.

Fears the euro zone will crumble have receded since Mr. Draghi promised last year to buy bonds of troubled euro zone countries to contain their borrowing costs. But Mr. Weidmann has often complained that the E.C.B. has gone too far, endangering its independence from political leaders and its mandate to guard price stability above all else.

On Tuesday Mr. Weidmann repeated his contention that the best solution to the euro zone crisis is for countries to get government spending under control and improve the performance of their economies. He said that relative calm on financial markets was due not only to bank policy, but also to progress by political leaders.

“The reduction of tension on financial markets should by no means lead to neglect of the necessary structural reforms,” Mr. Weidmann said in a statement.

The Bundesbank decision to bolster its reserves may also reinforce fears among Germans that their money is at risk because of European bank policies designed to keep the euro zone from falling apart. The Bundesbank is one of Germany’s most respected institutions, widely regarded as a bulwark against less prudent members of the euro zone.

Since 2010 the E.C.B. has acquired bonds from troubled euro zone countries valued at 209 billion euros, with Italian government bonds accounting for nearly half of that amount. In an attempt to encourage lending to businesses and consumers, the E.C.B. has also vastly expanded the collateral that commercial banks can post in return for cheap central bank loans.

The 17 national central banks in the euro zone, which carry out much of the work involved in running a currency union, would share the losses if a country were to default on its bonds or if collateral posted by a bank were to lose value.

Among Germans, there is widespread fear that Germany would bear much more than its share of the cost if the euro zone fell apart. The Bundesbank acts as the clearinghouse for large transactions in the currency zone, and other central banks have what amount to large overdrafts.

At a press conference to present the Bundesbank’s annual results, Mr. Weidmann repeated warnings that France was slipping behind because of its failure to make economic reforms. But he acknowledged that E.C.B. policies had not yet led to an increase in inflation.

“In the short term, we in the euro area have, if anything, declining inflation risks,” he said. Mr. Weidmann also said the German economy was in good shape.

The Bundesbank, like other central banks in the euro zone, continues to do much of the day-to-day work of the euro zone, including making sure there is enough money in circulation, storing gold reserves and acting as go-between for large payments between commercial banks.

Its activities generate interest income, which totaled 11 billon euros last year, up from 8.6 billion euros in 2011. The Bundesbank’s profit, however, has plunged 90 percent since the financial crisis began in 2008, as the bank set aside ever larger sums to cover risk.

Article source: http://www.nytimes.com/2013/03/13/business/global/german-central-bank-doubles-reserves.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: best solution, government bonds, price stability

New E.C.B. Official May Be Open to Bond-Buying

December 14, 2011 by NewsMaker Leave a Comment

Mr. Coeuré, 42, will take office in January, giving France a representative on the six-member board for the first time since Jean-Claude Trichet retired in October as E.C.B. president.

During testimony before a committee of the European Parliament on Monday, Mr. Coeuré said that it might be necessary for the E.C.B. to step up its purchases of sovereign bonds in order to maintain the bank’s control over interest rates.

That was not a declaration in favor of wholesale bond purchases by the E.C.B., which a large group of economists advocate as the only way to hold down borrowing costs and save the euro. But the statement suggested that Mr. Coeuré may be more flexible on the issue than Jürgen Stark, a German who is leaving the executive board at the end of the year because of his discomfort with E.C.B. bond market intervention.

Jörg Asmussen, a high-ranking official in the Finance Ministry, will replace Mr. Stark and is seen as less of a hard liner. However, Mr. Asmussen is also close to Jens Weidmann, the president of the German Bundesbank who has been an implacable opponent of stepping up E.C.B. bond purchases.

Mr. Weidmann repeated his opposition to more bond buying Wednesday in a speech in Berlin. “One idea should be dispensed with once and for all, namely the idea of using the printing press to create emergency funds,” he said. “That would endanger the most important foundation of a stable currency: the independence of a central bank focused on price stability.”

Mr. Coeuré replaces Lorenzo Bini Smaghi, an Italian who resigned to make way for a French representative. Members of the executive board are supposed to represent the interests of the euro area and not a particular country. But there is an unwritten rule that the largest countries in the euro area should each have a seat on the executive board.

After Mario Draghi took over as president of the E.C.B. at the beginning of November, Italy was seen as over-represented on the board.

Mr. Coeuré, deputy director-general of the French Treasury, belongs to the inner circle of officials who manage the country’s debt and finances and has also been a key figure behind the scenes at meetings of the Group of 20 countries.

Official interest rates and other key policy decisions are set by the E.C.B. governing council, which consists of the executive board plus heads of the central banks of the 17 euro nations. But the members of the executive board play a particularly influential role, managing E.C.B. operations and proposing policy initiatives.

The E.C.B. governing council has not yet decided what portfolios Mr. Coeuré and Mr. Asmussen will assume when they join the executive board. Mr. Stark has been the E.C.B.’s de facto chief economist, a position both Mr. Coeuré and Mr. Asmussen are likely to covet.

The European Parliament approved Mr. Coeuré by a wide margin.

Liz Alderman contributed reporting from Paris

Article source: http://www.nytimes.com/2011/12/15/business/global/new-ecb-official-may-be-open-to-bond-buying.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: largest countries, lorenzo bini smaghi, price stability

Bank Chief Rejects Calls to Rescue Euro Zone

November 18, 2011 by NewsMaker Leave a Comment

Mr. Draghi, who took office at the beginning of the month, implicitly rejected calls for the E.C.B. to use its enormous financial resources to stop the upward creep of borrowing costs for Spain and Italy, which threaten their solvency and by extension the European and global economies.

On Thursday, José Luis Rodriguez Zapatero, Spain’s prime minister, demanded that the E.C.B. find a solution to the euro crisis, saying that “this is what we transferred power for.”

But Mr. Draghi said the E.C.B. would not deviate from its focus on price stability and suggested that other measures could undercut the bank’s credibility.

“Gaining credibility is a long and laborious process,” Mr. Draghi said at a gathering of bankers in Frankfurt. “But losing credibility can happen quickly — and history shows that regaining it has huge economic and social costs.”

He criticized leaders for taking too long to act on decisions they have made at numerous European summits. “Where is the implementation of these longstanding decisions?” he asked. “We should not be waiting any longer.”

If collapse of the euro seemed imminent, the E.C.B. would become lender of last resort to countries like Italy, many analysts say. But the bank seems to be far from the point, instead insisting that countries take steps to cut budget deficits and improve their economic performance.

Jens Weidmann, president of the Bundesbank, the German central bank, was more blunt than Mr. Draghi in rejecting use of the E.C.B. to get governments out of financial trouble, reflecting the hard line that German policy makers have taken on the issue.

“The economic costs of any form of monetary financing of public debts and deficits outweigh its benefits so clearly that it will not help to stabilize the current situation in any sustainable way,” Mr. Weidmann said at the same event, the Frankfurt European Banking Congress.

He put the onus on governments to address deficiencies in their national economies. “These deficiencies include a lack of competitiveness, rigid labor markets and the failure to seize opportunities for growth,” he said.

Article source: http://www.nytimes.com/2011/11/19/business/global/bank-chief-rejects-calls-to-rescue-euro-zone.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: euro zone, luis rodriguez zapatero, price stability

Citing Global Weakness, Central Banks Hold Interest Rates Steady

September 8, 2011 by NewsMaker Leave a Comment

The E.C.B. joined the Bank of England and several Asian central banks in leaving benchmark interest rates unchanged Thursday, as they wait to see if the global economy deteriorates.

Nearly stagnant growth in the euro zone has raised questions whether the E.C.B. acted prematurely when it raised rates twice earlier this year, to 1.5 percent from 1 percent.

While warning that the euro zone economy was “subject to particularly high uncertainty and intensified downside risks,” Mr. Trichet defended the E.C.B.’s earlier policy moves as necessary to hold down prices.

“We think what we did was appropriate,” he said at a news conference, which also included a rare outburst against his critics. Asked about complaints about E.C.B. policy in the German Parliament, Mr. Trichet said, with obvious irritation, “We do our job, it’s not an easy job.”

Mr. Trichet normally suffers the financial press corps with remarkable equanimity. But, with less then two months to go before retirement, he seemed to vent frustration at the lack of appreciation the central bank has received during the sovereign debt crisis, when it has effectively held the euro zone together while political leaders appeared to dither.

“We have delivered price stability impeccably — impeccably!” he said loudly, reminding his German critics that inflation under the E.C.B. had been lower than when the Bundesbank, the German central bank, oversaw the Deutsche mark.

As Mr. Trichet nears the end of his term leading the E.C.B., the bank is on the front lines of the most acute crisis the euro has seen. Some European banks are struggling to borrow on the interbank market because of questions about their solvency; the E.C.B. is keeping them afloat by providing them with emergency low-cost loans. The E.C.B. is also buying Spanish and Italian bonds on the open market to stem pressure on their borrowing costs, which have threatened to reach ruinous levels.

Mr. Trichet gave no clear sign that the E.C.B. was poised to dial back rates soon, as some economists have urged. But he said the bank’s economists expected inflation to decline next year, suggesting there would be room to cut rates if growth deteriorated further.

The E.C.B. “has effectively left the door open to a change of stance should the situation demand it, but in our view this is far from imminent,” Janet Henry, an analyst at HSBC in London, wrote in an analysis. “It would take a significant recession” before the E.C.B. changes direction, she wrote.

Dirk Schumacher, an economist in Frankfurt for Goldman Sachs, wrote in a research note: “The E.C.B. is keeping its options open.”

The Bank of England decided to leave its benchmark interest rate unchanged at 0.5 percent to help the weakening British economy, amid concerns that Europe’s debt crisis might become more of a drag on growth.

The central banks of South Korea, Indonesia, the Philippines and Malaysia all kept rates unchanged at their policy meetings Thursday, as they waited to see how their economies would be affected by slower growth and debt concerns in Europe and the United States.

Mr. Trichet will cede the E.C.B. presidency to Mario Draghi, governor of the Bank of Italy, at the end of October. The news conference Thursday was Mr. Trichet’s last at E.C.B. headquarters in Frankfurt. Next month’s governing council meeting, Mr. Trichet’s last, will be in Berlin, where concern is growing that Greece will not be able to fulfill conditions for further aid, raising the possibility it will have to default on its debt and exit the euro. “Ladies and gentlemen, the situation is serious in Greece,” Wolfgang Schäuble, the German finance minister, told members of the Bundestag, or Parliament.

Asked about Greece, Mr. Trichet said only that he still assumed the country would fulfill conditions set by the International Monetary Fund and European Commission. He also sought to calm alarm about tensions in the interbank lending market, which have made it more difficult for some institutions to raise funds from their peers and made them reliant on emergency loans from the E.C.B. He acknowledged that interbank lending had tightened, but said banks were not borrowing nearly as much from the E.C.B. as they could.

“Liquidity is a false problem and I can prove it,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=e403f896d66c7d00c70974131edd0bed

Filed Under: Business News Tagged With: bundesbank, debt crisis, price stability

Inflation Steady in Euro Area, but Number of Jobless Grows

August 31, 2011 by NewsMaker Leave a Comment

The European Union statistics office Eurostat said that inflation in the 17 countries using the euro was 2.5 percent year-on-year in August, the same as in July, as expected by economists.

The E.C.B. wants to keep inflation below but close to 2 percent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 percent from 1.5 percent to stem price pressures.

Eurostat also reported that unemployment was 10 percent in July, unchanged from an upwardly revised June rate, which was initially reported at 9.9 percent. But the number of unemployed in the euro zone rose by 61,000 in July against June to 15.757 million.

“The latest data and surveys fuel belief that the E.C.B.’s ultimate next move may actually be to trim interest rates,” said Howard Archer, economist at IHS Global Insight. But, he added, the central bank probably will want to see “sustained” economic weakness to “do a U-turn.”

Aline Schuiling, an economist at ABN AMRO, said the stabilization was likely due to a decline in energy price inflation balancing a rise in the core inflation rate.

“Looking forward, we expect inflation to remain well above the E.C.B.’s price stability goal this year, before falling below this level next year, as energy price inflation drops back noticeably while the rise in the core rate is restrained by the moderate level of economic growth,” she said.

The E.C.B. president Jean-Claude Trichet said on Monday that the bank was reviewing the risks to price stability, suggesting it could tone down its view on inflation pressures.

In its last staff projections, released in June, the E.C.B. forecast euro zone inflation in a range of 2.5-2.7 percent this year and 1.1-2.3 percent in 2012.

The rise in the number of unemployed is likely to slow down wage growth and therefore help keep down underlying inflation, said Jennifer McKeown, European Economist at Capital Economics.

“These data should help to convince the E.C.B. that its earlier fears of a sharp rise in inflation were unwarranted, perhaps opening the door to interest rate cuts in the not too distant future,” she said.

Article source: http://feeds.nytimes.com/click.phdo?i=52253084b38cbc106c3fa214e0b62d0f

Filed Under: Business News Tagged With: global insight, price stability, u turn