The Great Debate

Real commodity prices and the U.S. rate cycle

February 10, 2010

– John Kemp is a Reuters columnist. The views expressed are his own. –

Locking up bank reserves is wrong policy focus

February 9, 2010

– John Kemp is a Reuters columnist. The views expressed are his own. —

Sluggish investment will hamper recovery

February 2, 2010

– John Kemp is a Reuters columnist. The views expressed are his own –

from The Great Debate UK:

You never know when rates will rise

October 8, 2009

David Kuo-David Kuo, Director at the financial website The Motley Fool. The opinions expressed are his own.-

BoE extends QE, fears 1930s re-run

August 6, 2009

John Kemp

– John Kemp is a Reuters columnist. The views expressed are his own –

from The Great Debate UK:

Bank of England faces dilemma on QE extension

April 9, 2009

johnkemp-- John Kemp is a Reuters columnist. The views expressed are his own --

LONDON, April 9 (Reuters) - The Bank of England's terse press statement announcing it will maintain overnight rates at 0.5 percent and continue the existing 75 billion pound quantitative easing (QE) programme gives no clue about whether the Bank intends to extend the programme when the first tranche of asset purchases are completed in June.
But officials will have to make a decision soon: unless they signal a commitment to extend QE, gilt yields will rise even further in anticipation that the major buyer in the market will withdraw.
The QE programme is dogged by ambiguity about its objectives (which a cynical observer might conclude is deliberate).
Officially, the aim is to prevent inflation falling below target by accelerating money supply growth, not manipulate the yield curve for government and corporate debt.
In this, the Bank's avowed strategy is more conventional than the Fed's ambitious efforts to determine the cost of credit for borrowers throughout the economy. It is a straightforward quantitative easing patterned on the Bank of Japan, rather than a credit easing patterned on the Fed.
If true, the measure of success is how much the money supply has been boosted at the end of the three month period; the Bank should be indifferent about whether ending QE causes yields and borrowing costs to rise.
So long as money supply has risen consistent with the inflation target, and the Bank can discern some green shoots of stabilisation if not recovery, officials can declare victory, end the programme, and keep the other 75 billion pounds of asset purchases authorised by the chancellor in reserve. Yields can be left to find their natural level.
But many suspect the Bank's real objective is yield control -- in which case it will have to announce another round of buy backs of gilts and corporate bonds in good time, well before the current programme is completed, to shape market expectations.
The results of the existing round have been unimpressive.
After falling initially, gilt yields are almost back up to the level they were at before the Bank's foray into unconventional monetary policy.
The snag is that if the Bank stops buying, other investors will struggle to absorb all the new government paper on offer without a major increase in yield -- pushing up borrowing costs for everyone, precisely what the Bank has sought to avoid.
The Bank's dilemma is whether to push on (heightening fears about inflation) or call a halt (risking a spike in yields all the same).
Either way, the Bank needs to give the market, as well as the Treasury and the Debt Management Office, plenty of warning about its intentions.
(Editing by Richard Hubbard)

from The Great Debate UK:

Quantitative easing a last resort

April 9, 2009

img_3391-alan-clarke-Alan Clarke is UK economist at BNP Paribas. The opinions expressed are his own-

As expected, the Bank of England left the Bank Rate unchanged at 0.5 percent at the April meeting, the first unchanged decision since September 2008.

How will the Fed get off its Tiger?

By J Saft
December 19, 2008

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –