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Highlights
BLACKSTONE'S TAKE: A TALE OF TWO CITIES: BASEL AND ATHENS
This weekend brought a stark contrast in the world of central banking: how the Bank for International Settlements thinks it should be, and how the European Central Bank and others see it amidst the fallout from the meltdown in Greece that now includes bank closures and capital controls.
Here's the weekend recap.
In its annual report published Sunday the BIS--a Basel, Switzerland-based consortium of central banks--repeated its warnings of recent years that ultra-loose monetary policies may do more harm than good.
"Monetary policy has been overburdened for far too long," the BIS said in its report. "It must be part of the answer but cannot be the whole answer."
Its reasoning is that low interest rates may lead to more financial booms and busts. These weigh on the global economy's growth potential, meaning ongoing low interest rates, rising debt and a continuation of a negative cycle.
"In short, low rates beget lower rates," the BIS said.
And this line of reasoning makes sense. Central banks, particularly in the U.S. and U.K. where economies have recovered, still have crisis-like interest rates near zero. And other generally healthy economies such as Denmark, Sweden and Switzerland have negative policy rates to shield their economies from any fallout from the ECB's quantitative easing program.
At some point, some major central bank must raise rates or put their economies at risk of destabilizing asset bubbles in housing and other rate-sensitive sectors.
But the ECB is a cautionary tale. Of the world's major central banks, it is already near the end of the line when it comes to the prospects for tightening policy. Its quantitative easing program isn't slated to end until September 2016 and could stretch further.
But faced with a Greek debt default, the ECB has already signaled it can do more to protect the eurozone. "The Governing Council is determined to use all the instruments available within its mandate," it said Sunday, after declining to add to an emergency lending lifeline for Greek banks beyond the roughly 89 billion euros that is currently extended.
And it isn't just the ECB that is affected by Greece. If there's a messy exit from the eurozone that destabilizes global financial markets, that could make it harder for the Federal Reserve to raise rates as soon as September (after all, the ECB hiked rates around two months before the Lehman collapse in 2008, and that didn't turn out so well).
Sweden, Denmark and Switzerland--which are outside the eurozone but dependent on what happens there--may be forced to ease more to keep their currencies from strengthening too much.
So on the one hand, the BIS is right: the era of super-accommodative monetary policy can't continue indefinitely. But events in Athens show how hard it is for central bankers to follow this advice.
-By Brian Blackstone
MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLD
Greece Orders Banks Closed, Imposes Capital Controls to Stem Deposit Flight. Greece shut down its banking system, ordering lenders to stay closed for six days starting Monday, and its central bank moved to impose controls to prevent money from flooding out of the country. The steps, a fateful climax to five years of debt crisis, put Greece closer than it ever has been to an exit from the euro and pushes the common currency itself into uncharted waters.
Swiss Central Bank Intervened to Stabilize Franc Amid Greek Concerns. Switzerland's central bank had intervened in the currency markets Sunday night to stabilize the strong franc, which has faced renewed buying triggered by the concerns over a potential Greek exit from the euro.
What Yellen And Other U.S. Officials Have Said About Greece and the Global Economy .
China Struggles to Balance Volatile Markets. As the past trading week drew to a close, the People's Bank of China was getting increasingly nervous about the money evaporating from Chinese stocks. The central bank decided it was time for an about-face, quickly moving to ease credit.
5 Questions About the PBOC's Latest Easing Measures.
Economists React .
BIS Warns of Overreliance on Monetary Policy. The Bank for International Settlements issued a stark warning Sunday that the feeble global economy remains too dependent on monetary policy to stimulate demand in the absence of more lasting structural reforms.
BIS: Fed Should Work Closely With Other Central Banks. The BIS said Federal Reserve officials should cooperate more closely with other central bank policy makers, and possibly set rules that would limit their individual freedom of action to avoid excessive tightening or loosening of monetary policy at a global level.
BIS' Graphic Error Leaves Greece Out of Eurozone. The eurozone has already lost Greece. At least, that's what a map included in the BIS's annual report appears to show. It is, of course, an embarrassing error rather than a product of the BIS' insight into the fate of the eurozone's most troubled member. The graphic also omits Malta, Slovenia, Slovakia, Luxembourg and Cyprus from the euro's reach even though all are members of the currency area.
Fed's George: Payments System Needs Improvement. In a speech highlighting the need for improving the U.S. payments system, Federal Reserve Bank of Kansas City President Esther George said there's a renewed focus on bolstering security. Among industry participants and central bankers, "I sense a greater degree of consensus around the security challenges we face," Ms. George said Friday. The Fed plays a significant role in providing the infrastructure to move money around in the U.S. economy.
Fed's Dudley Reiterates Rate Hike Possible by Year's End. Federal Reserve policymakers could be inclined to hike interest rates as soon as September, or may equally feel a delay until December is justified should economic data soften, a key central banker has said. "It would not shock me if we decided to lift off in September," William Dudley, president of the New York Federal Reserve Bank, told the Financial Times in an interview Friday and posted on the newspaper's website Monday. But, added Mr. Dudley, "it wouldn't shock me if the data were a little softer and it caused us to wait" until December--Dow Jones Newswires.
Quieter April for Yellen. After a flurry of Capitol Hill meetings in March, Fed Chairwoman Janet Yellen met with just two lawmakers in April, both Democrats. Ms. Yellen met with Sen. Sherrod Brown (D., Ohio) and separately with Sen. Patty Murray (D., Wash.), according to her monthly calendar.
GRAPHIC CONTENT
U.S. Stands Out. The U.S. has become an outlier among its peers in a key employment gauge. Among eight major advanced economies, all but one -- the United States -- show gains in labor force participation over the past 15 years, according to a new study by Maximiliano Dvorkin and Hannah Shell of the Federal Reserve Bank of St. Louis. Participation fell by 4.6 percentage points in the U.S. between 1997 and 2013, says the study based on data from the Organization for Economic Cooperation and Development. By contrast, it rose over that period in Canada, France, Germany, Japan, Spain, Sweden and the United Kingdom.
FORWARD GUIDANCE
MONDAY
-1400 GMT (10 a.m. EDT): BOE's Haldane remarks, to be delivered Tuesday, released
TUESDAY
-0935 GMT (5:35 a.m. EDT): New York Fed's Dudley speaks in Basel, Switzerland
-1300 GMT (9 a.m. EDT): ECB's Nowotny speaks in Vienna
-6 p.m. EDT: St. Louis Fed's Bullard speaks in St. Louis, Mo.
WEDNESDAY
-ECB holds a non-monetary policy meeting in Frankfurt
-National Bank of Georgia releases a policy statement
-National Bank of Romania releases a policy statement
-Bank of Albania releases a policy statement
THURSDAY
-0730 GMT (3:30 a.m. EDT): Sweden's Riksbank releases a policy statement
-1130 GMT (7:30 a.m. EDT): ECB releases minutes of its June 3 policy meeting
-8:30 a.m. EDT: U.S. Labor Department releases June employment report
-1510 GMT (11:10 a.m. EDT): ECB's Draghi speaks in Milan, Italy
-1630 GMT (12:30 p.m. EDT): ECB's Mersch speaks in Milan, Italy
FRIDAY
-U.S. markets closed for Independence Day holiday
-0610 GMT (2:10 a.m. EDT): ECB's Constancio speaks in Vilnius, Lithuania
-0800 GMT (4 a.m. EDT): ECB's Nowotny speaks in Vienna
RESEARCH
Get Used to Part-Time Work. The Atlanta Fed's Ellie Terry uses surveys from the central bank to show that the high share of part-time employment in the U.S. is likely to persist. "Higher compensation costs of full-time relative to part-time employees and the role of technology that enables companies to more easily manage their workforce can be considered structural factors influencing the behavior of firms," she writes.
IMF: Fed Should Wait Until Mid-2016 to Raise Rates. The Fed should wait until the middle of 2016 to start raising short-term interest rates from near zero to ensure the economy is on a firmer footing and inflation is returning to the central bank's 2% target after undershooting it for more than three years. That's the message from a new working paper from the International Monetary Fund that lends some technical chops to the argument the fund's Managing Director Christine Lagarde has been making to both U.S. and European officials: The world economy is still fragile and inflation very low, so don't rush to tighten monetary policy just yet.
COMMENTARY
(MORE TO FOLLOW) Dow Jones Newswires
June 29, 2015 07:17 ET (11:17 GMT)
Shelter from the Storm in Europe. On Project Syndicate, Mohamed El-Erian looks beyond the Greek crisis to other looming European crises involving the war in Ukraine and the rise of anti-immigrant, anti-European and anti-austerity parties. "With three storms looming, Europe's leaders must act fast to ensure that they can dissipate each before it merges with the others, and cope effectively with whatever disruptions they cause. The good news is that regional crisis-management tools have lately been strengthened considerably, especially since the summer of 2012, when the euro came very close to collapsing," he writes.
ECB Errors Paved Way for Greek Exit. Writing on VoxEU, Charles Wyplosz argues the European Central Bank's decision not to top up its emergency liquidity assistance to Greek banks will lead to the nation's departure from the eurozone. "The ECB's decision is the last of a long string of ECB mistakes in this crisis," he writes. "Beyond triggering Greece's eurozone exit -- thus revoking the euro's irrevocability -- it has shattered eurozone governance and brought the politicisation of the ECB to new heights. Bound to follow are chaos in Greece and agitation of financial markets -- both with unknown consequences."
BASIS POINTS
Consumers Upbeat. The University of Michigan final June sentiment index came in at 96.1, well above the end-of-May level of 90.7.
Eurozone manufacturers lost some of their optimism in June as order books thinned, but a monthly survey carried out by the European Commission found little sign of alarm among businesses about the threat of a Greek exit from the currency area.
Eurozone Inflation Likely Slowed in June: WSJ Economists Surveyed. According to median forecasts by economists polled by The Wall Street Journal, consumer prices likely rose 0.2% in the year ended in June. This would be a slower rate than May's 0.3% annual increase and still much beneath the European Central Bank's inflation target of below, but close to, 2%. -- Dow Jones Newswires.
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(END) Dow Jones Newswires
June 29, 2015 07:17 ET (11:17 GMT)
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