Reuters blog archive
Euro zone inflation has dipped again and some forecasters are hedging their bets on the policy response by saying the European Central Bank could either cut rates this week or sometime in the next two months.
That lack of conviction, although not a recent phenomenon, is driven by memory of the ECB's surprise cut in November after a similar drop in inflation and a nagging belief that things have not worsened enough in the interim to warrant another.
Only two of 76 analysts - Barclays and IFR Markets - in a Reuters poll conducted before news on Friday that January euro zone inflation fell to 0.7 percent said the ECB would trim its refinancing rate below 0.25 percent this week.
Now a few more, including Deutsche Bank and RBS say they will. While many economists say the decision is a close call, most lack conviction over whether it will do any good.
From Turkey, which hiked its overnight lending rate by an astonishing 425 basis points in an emergency meeting on Tuesday, to India which delivered a surprise repo rate hike a day earlier, central banks are increasingly looking to "shock and awe" markets into submission with their policy decisions.
Next time you ask an economist a question about the euro zone, be sure to enquire where their head office is based.
London? New York? Expect a pessimistic response on euro zone matters.
Frankfurt? Paris? Happier days are coming soon for the currency union.
So that's oversimplifying matters slightly - but as we've seen time over, institutions based outside the euro zone are likely to be gloomier about its prospects, and those based inside it are more likely to look on the bright side.
Here's some of the top reasons from a 1999 Reuters poll on why a housing bubble wouldn't form, which are re-appearing 14 years later.
The Bank of England will stop a bubble forming
2013: "If there's another bubble, the Bank of England and the Government of course have means by which we can anticipate that and ensure that that doesn't happen again." - Danny Alexander, chief secretary to the UK Treasury.
1999 Reuters poll: "Economists and property specialists say the Bank of England won't let another inflationary boom happen. The Bank has already said it will monitor house prices closely. 'It's unlikely to become inflationary unless the monetary policy stance becomes too loose and that's highly unlikely,' said economist Trevor Williams of Lloyds Bank TSB."
Now Britain's housing market is showing real signs of life, should the government abandon its "Help to Buy" scheme to boost access to the market for homebuyers?
Economists and property analysts polled by Reuters over the last week were split. Two weeks ago, a majority of economists put the chances of another UK housing bubble forming at 50 percent or greater, catalysed by the Help to Buy programme.
from The Great Debate:
Although the Fed announced months ago it is considering pulling back its purchase of assets, unemployment remains historically high. What, if anything, can the government do to get people back to work?
In order to determine the right policy prescription, first we must diagnose what’s causing unemployment. Is the high unemployment due to low demand from the recession, known as cyclical unemployment, or has the world changed and jobs are not coming back, known as structural unemployment? Most likely it’s both. It is impossible to know precisely how much new unemployment is structural and how much is cyclical. This uncertainty has sparked a contentious debate about the nature of unemployment that has been raging since the start of the recession, and lately seems to be hardening into absolutism. The cyclical camp fears that acknowledging an increase in structural unemployment will be used as an excuse to support tightening monetary policy, and gives the government a pass on fixing unemployment. But actually, saying all unemployment is cyclical is what lets the government off too easy. Structural unemployment can be helped with policy, but the solutions take more political will, creativity and leadership. We can lower the structural rate by changing tax incentives to encourage mobility, both job and location, and building a wealth cushion to finance productive job transitions.
Based on the latest U.S. Treasury flows data, it may be time to ditch the textbook theory that says less monetary stimulus means a stronger currency - at least for now.
The problem may just be that the theory doesn't fully account for the situation when your largest creditors - and they are very large - are trying to beat you to the market.
Optimism the Indian economy will soon recover, despite no sign that it is anywhere near doing so, has increasingly led forecasters to overestimate industrial production growth.
Incessant official revisions to the data, after initial forecasts are proved wrong, also mean investors and companies don't have a clear and timely view.
Ask an economist a question about the euro zone, and the answer will as much depend on the location of their head office as any analysis of the data.
It's been noted before (here, here, and here), but economists and fund managers working for euro zone-based banks and research houses tend to be optimists about the euro zone. Everywhere else - including Britain, North America and the Nordics - they tend to be pessimists.
Reuters has just published a poll of economists that shows Federal Reserve Vice-Chair Janet Yellen is the overwhelming favorite pick for President Obama to replace Ben Bernanke as Fed Chairman next year.
The poll conclusions are based on the collective thoughts of dozens of professionals who are not only paid to make these kinds of predictions, but who are also likely to have been in a conversation with people who ought to know.