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Apr 25, 2012
via MacroScope

High inequality makes it tougher to reform economies: Swedish Finance Minister

Americans are all too acquainted with the shouting-match politics that tends to accompany any debate over economic policy: everyone is yelling and nobody is listening. The toxic political discord in Washington has become so familiar it is almost a cliché.

It turns out high levels of income inequality, which the United States is also famous for, could be to blame. According to Anders Borg, the Finance Minister of Sweden, a large wealth gap makes it harder to achieve political consensus because the debate is poisoned by mistrust. Speaking at the Peterson Institute this week, Borg said high inequality in Southern Europe was a factor preventing those countries from achieving agreement as they struggle with a deep financial crisis:

Apr 25, 2012

Rate hikes a distant prospect for more upbeat Fed

WASHINGTON (Reuters) – The Federal Reserve may appear slightly more upbeat on the economy on Wednesday, though investors should not mistake this cautious optimism for any desire to raise interest rates soon.

Instead, central bank officials will probably reiterate their expectations that official borrowing costs will remain near zero until at least late 2014, and leave open the option to ease policy further if the economy worsens.

Apr 24, 2012

Fed to stand pat, Bernanke briefing will set tone

WASHINGTON, April 24 (Reuters) – The Federal Reserve began a
two-day meeting on Tuesday that will likely show the central
bank is slightly more upbeat on the economy but in little hurry
to raise borrowing costs.

Investors wishing for clues into the prospect of a further
easing of monetary policy from the U.S. central bank may be
disappointed. U.S. economic growth has been just firm enough to
weaken the case for additional unconventional stimulus through
Fed purchases of government or mortgage bonds.

Apr 24, 2012
via MacroScope

Resolving Shirakawa’s conundrum

The governor of the Bank of Japan, Masaaki Shirakawa, says he is confounded by the still very low level of Japanese government bond yields given the country’s elevated debt to GDP ratio of over 200 percent. Speaking on an IMF panel over the weekend, he offered a rather unintuitive explanation for the phenomenon:

It seems difficult to explain the case of Japan in light of conventional wisdom. One frequently offered explanation is that the ample domestic savings in Japan have absorbed the issuance of JGBs and the share of JGBs held by foreign investors is very small. But a more fundamental explanation is that the stability in the current bond yields reflects market participants’ expectations that fiscal soundness will be restored through structural reforms imposed in the economic and fiscal areas.

Apr 23, 2012
via MacroScope

Roubini takes on the ECB

It was fun to watch. Nouriel Roubini, NYU economist and crisis personality, was one of just five carefully selected individuals at a large gathering in the International Monetary Fund HQ1 building’s towering atrium who actually got to ask questions of the policymakers on stage.

Roubini was characteristically biting in his critique of conventional orthodoxy, singling out the European Central Bank for not having done enough to stem the euro zone’s two-year financial crisis. He challenged the notion that the ECB is powerless to boost growth further, suggesting — to the clear discomfort of some policymakers in the room — that measures to weaken the currency could provide a badly-needed boost to exports:

Apr 23, 2012
via MacroScope

Monetary policy as a skimpy spare tire

Central bankers have said repeatedly since the start of the global financial crisis that monetary policy can only do so much to heal a broken economy. Agustín Carstens, president of Mexico’s central bank, chose an interesting analogy at an IMF event this weekend to describe the adjustment needed in countries with very high debt levels:

In relatively modern cars the spare tire is (pretty small). Basically that spare tire should be enough to take you to the next gas station. But if you want to drive your car (a very long distance) it’s likely you will never get there.

Apr 23, 2012
via MacroScope

Eurobonds key to financial stability: Nobel economist

There’s no other way. In order for Europe to hold together as a monetary union it must be able to issue a currency region-wide bond. That’s according to Christopher Sims, Nobel-prize winning economist and Princeton University professor, speaking on a panel at the IMF over the weekend:

My view is that the only way to preserve the usual manner of operation of monetary policy in Europe, and the usual operation of financial institutions is to deliver on the Eurobond, and not after years but soon. A Eurobond that could be used as the main instrument of monetary policy in Europe would go a long way to stabilizing the financial system.

Apr 20, 2012
via MacroScope

IMF crisis funds: Why nobody really cares

With reporting from Steven C. Johnson and Nick Olivari

A lot of time and money is spent on high-profile multilateral gatherings like this weekend’s International Monetary Fund meeting in Washington. The central story this time is the Fund’s effort to raise more funds (no pun intended), which appears to have been successful as G20 nations committed more than $430 billion in new funds.

French Finance Minister François Baroin, speaking to reporters at a press briefing on the sidelines of the IMF meeting, greeted the news with optimism:

Apr 20, 2012
via MacroScope

An upward bias in jobless claims revisions

Weekly data on applications for unemployment benefits have gained renewed importance since a weak March payrolls number left economists wondering whether a tentative labor market recovery was about to cave again. The last two weeks’ readings were just soft enough to leave investors thinking the country’s unemployment crisis may not be healing very quickly.

Daniel Silver at JP Morgan has dug deeper into the claims figures and found a curious trend: a repeated and distinctive tendency toward upward revisions in the numbers.

Apr 19, 2012
via MacroScope

Five reasons why the Fed would prefer to avoid QE3

The Fed appears to have moved away from the notion of additional bond purchases in recent weeks, for a  mix of tactical and practical reasons including:

1. Policymakers worry about venturing any further into uncharted territory.

2. Growth isn’t weak enough to make a clear case for additional monetary easing.

    • About Pedro

      "Pedro da Costa has been covering economics and financial markets since 2001. He is currently based in Washington and focuses on the Federal Reserve and macroeconomic policy. Da Costa earned a Master's in international relations at the University of California San Diego and studied sociology and political science as an undergraduate at the University of Chicago and the London School of Economics. He grew up in Rio de Janeiro, Brazil."
      Joined Reuters:
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      2011 Deadline Club Award from the Society of Professional Journalists' New York Chapter
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