Don’t believe predictions of low interest rates

By Edward Hadas
July 9, 2014

Central bankers and economists say the official cost of money in the post-zero rate era will remain cheap by historic standards. Their prognostications rely on a theory which is unsound, unsupported by evidence and impossible to apply. Future rates are as likely to be high as low.

Can sterling hit $2? Only with a perfect storm

June 18, 2014

Having touched $1.70, the pound is on the brink of escaping its five-year range. A return to $2 looks like a fantasy right now. But a more hawkish BoE, a dovish Fed, a Scottish “No” to independence, and a narrowing of the UK’s twin deficits would do a lot to close the reality gap.

Central banks abet the complacency they fret about

June 4, 2014

Monetary policymakers worry that today’s torpid markets carry the seeds of tomorrow’s torrid moves. They’re right to worry, but the problem is of their own making. Cheap money is making investors complacent, so they underestimate the risk of big adverse price swings.

Bank of England can overlook Russia’s problems

May 23, 2014

Rising house prices might encourage the British central bank to increase rates. But the boom is mostly in London, and has been amplified by a surge of flight capital from Russia. When that fades, the economy will look less unbalanced, and a strong pound may be less of a problem.

London gives BoE an emerging economy problem

April 23, 2014

Foreign capital inflows are supporting a housing bubble in London, and have helped push up sterling - even though the UK’s trade position is almost dire. An unbalanced economy is getting worse. As pre-crisis emerging markets learned, this is a problem with no easy solution.

A credible strategy for Barclays’ investment bank

March 18, 2014

The lender’s investment banking unit makes inadequate returns and pays too much. Both problems can be fixed by shedding weaker business units, leaving a franchise that attracts staff loyalty through good times and bad. David Walker’s successor as chairman has a key role to play.

Just ditch forward guidance

By Edward Hadas
March 10, 2014

Central banks’ long-range rate forecasts prod excessive financial risk-taking and may slow necessary tightening, says the Bank for International Settlements. Forward guidance fails the risk-reward test. Although the BIS didn’t say it, the policy just doesn’t stack up.

BoE’s small-firm stimulus is blueprint for Draghi

December 2, 2013

The European Central Bank is reportedly mulling cheap loans to banks to gee up lending. The newly tweaked UK Funding for Lending scheme shows this isn’t easy, and replicating it in the euro zone would be even tougher. But Europe’s businesses need a leg-up even more than the UK’s.

Derivatives detail could sink bank wind-down plans

November 18, 2013

American and European regulators want to standardize contracts to help cross-border banks fail smoothly. If the problem isn’t fixed, investors could undermine financial stability by calling in swaps. It’s a reminder of how much work still needs to be done to end too big to fail.

BoE can escape its self-made forward guidance trap

November 13, 2013

When the Bank of England linked monetary policy to the labour market, it was unduly pessimistic about unemployment. Governor Mark Carney is now trying to fine tune his message, but he could just simplify: rates will stay at record lows for a while, whatever the jobless rate.