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US Fed: The Straw to Break the Camel's Back?
Tuesday, 26 September 2006 12:24:46 GMT  |  Terri Belkas, Junior Currency Analyst
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The central bank has finally started to note the slowdown in the housing sector as an issue…

 Fed_Fed logo Policy Statement from FOMC Meeting

“The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market… inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions.” – September 20, 2006

Oil_Richard Fisher Richard Fisher, Federal Reserve Bank of Dallas President

“As I sit at the (FOMC) table, I continue to fret more about inflation than I do about growth…slowing economic growth should act to lower the inflation rate over time. However, if this proves not to be the case, appropriate action will have to be taken.” – September 25, 2006

“We have a serious correction taking place in the housing sector.” – September 25, 2006

Along with foreign central bankers…

BoE_JG John Gieve, Bank of England Deputy Governor

“…there was a good deal of talk about what’s happening in the US economy and the housing slowdown there and whether that will that feed through into a more rapid deceleration of growth…So far, there’s no great sign in the figures for the US that the turndown is going to be a sharp and severe one, but that’s one of the things I’ll be watching quite closely in the next few months.” – September 22, 2006

And even former Chairmen are talking about the problems of the US economy…

Fed_AG Alan Greenspan, Fed Chairman 1987-2006

Said at a public appearance that much of the run-up in housing prices has apparently been due to speculators and investors, not homeowners, and that low interest rates world-wide have played an important role in underpinning housing. – September 22, 2006

Fed_PV Paul Volcker, Fed Chairman 1979-1987

“I am a little bit more worried about inflation…While the inflation rate isn't high or running away it is kind of creeping up, and I am impressed by the degree of pressure, if that is the right word -- psychological pressure, political pressure -- there is not to do anything about it.” – September 26, 2006

BoJ: Fresh Faces on Deck


Central bankers remain hawkish, but the new PM and his freshly picked cabinet appears to be more supportive of the BoJ than the old regime…

BoJ_TF Toshihiko Fukui, Bank of Japan Governor

Said that the economy and prices will continue to move in line with the BoJ’s forecasts and that the revisions to the consumer price index haven't changed the BoJ's basic view on prices. He reiterated that the central bank will slowly adjust (short-term) interest rates while closely monitoring developments in the economy and prices. – September 21, 2006

BoJ_KI Kazumasa Iwata, Bank of Japan Deputy Governor

“We’ll decide whether it (policy tightening) will be before the year-end or next year based on incoming data.” – September 25, 2006

BoJ_KO Koji Omi, Newly Elected Japanese Finance Minister

"Current conditions suggest that basically, the nation has already overcome deflation. From this standpoint, the BOJ's monetary policy up to date has been appropriate,” and adding that the government should not intervene on future monetary policy decisions.  – September 26, 2006

BoJ_SA Shinzo Abe, Newly Elected Japanese Prime Minister

“Their moves (currencies) should be stable and reflect fundamentals, and we need to monitor currency markets.” – September 19, 2006

BoJ_KA Kazuyoshi Akaba, Japanese Senior Vice Finance Minister

“We don't see much inflationary concern on the horizon, so an immediate rise in interest rates is not the right way as I see it.” – September 19, 2006

PBoC: Judgment Day

 

China has been in the spotlight in regard to yuan valuation due to the trade advantage it gives, but with the US Senate set to vote on a tariff bill by September 30th, the pressure is really on now…

PBoC_ZX Zhou Xiaochuan, People's Bank of China Governor

“I don't think we need a specific timetable on the yuan widening issue. It is totally up to market conditions.” – September 21, 2006

PBoC_QX Qiu Xiaohua, Director of China's National Bureau of Statistics

“China is unlikely to launch new measures to rein in rapid economic growth because signs are emerging that fixed-asset investment is slowing and rising property prices have moderated.” – September 25, 2006

PBoC_JR Jin Renqing, Chinese Finance Minister

“China must take account of international issues in macroeconomic policymaking in light of its increasing links to the global economy.” – September 19, 2006

Fed_HP Henry Paulson, U.S. Treasury Secretary

“I do care a lot about China progressing with their reforms. I am not looking for immediate solutions or quick fixes to any particular economic issue.” – September 19, 2006

“I find it quite encouraging that there are very few differences on the principles (between the US and China). Where there is discussion is on the timing” – September 22, 2006







BoE: No Consensus


Though the most recent BOE meeting yielded a unanimous vote to hold rates steady, it appears there is a wide range of opinion within the MPC.

The range goes from hawkish…

BoE_JG John Gieve, Bank of England Deputy Governor

“The Monetary Policy Committee considered raising interest rates for the second month in a row in September.” – September 25, 2006

“Well, I’ve obviously discussed and looked at the literature on what is the neutral or natural rate and the answer is, it’s very difficult to tell. I’ve looked at various estimates and they range from between 4.5-5.5%, so you could say 4.5% was definitely in the bottom range and I think at that point, yes it was on the accommodative side. Quite when we reach the tipping point you can’t be sure, this isn’t an observable fact. So I think we probably are in a range where trying to calculate the natural rate isn’t going to help very much.” – September 22, 2006

“I think import prices are a big issue. In our own consumer price index, goods inflation has risen quite sharply, having been very low and negative at some points in the last few years. So that is a concern - are we coming to the end of the period where globalization and the development of southeast Asia have been holding down goods prices?” – September 22, 2006

“I’ve already considered and got quite close to voting at one point in the minority but what I’m trying to do – and this is something that Mervyn [King – Bank governor] emphasizes and leads the committee to do - is to really focus on the numbers and come up to their best judgment.” – September 22, 2006

To highly dovish…

BoE_KB Kate Barker, Bank of England MPC Member

“House prices are rising faster than earnings and I have to say that's a surprise. In the very long run, it is difficult to think of house price growth being perpetually above earnings, unless there's something else going on, like a constraint of supply.” – September 19, 2006

“The risk that inflation in the autumn would have a more significant effect on wage setting was what lay behind the August rate rise...We've still got a little bit of slack in the economy. Unless growth stays very strong, the inflation rate is very likely to come down to trend, and that's what the forecasts showed.” – September 19, 2006

BoE_DB David Blanchflower, Bank of England MPC Member

In the minutes of the September 6/7 MPC meeting, he noted: “…even if minded to seek a reversal of the rate rise in due course, the signal to wage and price-setters in advance of the next pay round was sufficiently important that it would be unwise to vote for reducing rates this month.” – September 7, 2006

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