Thursday brings the announcements from two of the major rate setters in Europe: the Bank of England and the European Central Bank. First the BOE will announce at 6:00 a.m. CST and consensus says the bank will keep rates steady at 0.50% and the QE program at 375 billion pounds. Though the U.K. economy is soft, Governor Mervyn King will maintain a steady path so to keep his options available in case the global economy begins a new downturn. The present BOE head is retiring July 1 so it would be prudent to let his successor have as many tools to work with in a new regime.
Posts Tagged ‘nominal GDP’
In his regular Monday Financial Times column, Wolfgang Munchau takes full aim at Bundesbank President Jens Weidmann for trying to make ECB President Draghi the devil incarnate. Because Weidmann invoked the Faustian character, Mephistopheles, from German hero Goethe’s play Dr. Faustus, Munchau accuses the Bundesbank President of undermining the policies of the ECB. Weidmann is going directly to the German public to plead his case that the ECB is taking the EU down the road of inflationary hell and monetary debasement. Munchau takes up the Draghi/Bernanke/Woodford argument that “the debate about nominal income targeting, where a central bank no longer stabilizes the inflation rate directly but focuses instead on stabilizing NOMINAL GDP (emphasis mine).” Munchau assumes that the central banks would be vigilante in controlling inflation but offers no view about what happens if NGDP rises with a significant rise in inflation but unemployment has not met the desired target.
The Bernanke speech did not surprise readers of NOTES FROM UNDERGROUND as Bernanke did not promise any new stimulus plan but spent most of the speech recalling the successes of the FED’S extraordinary efforts to stimulate the economy and prevent a disastorous deflationary period from gaining traction in a debt-ladened financial system. The initial market response was a selloff in the precious metals as the ALGOS reacted to a no new stimulus headline with, “risk off” and after reading that the headlines were cursory and misleading, reversed and the GOLD AND OTHER RISK ON ASSETS WENT INTO FULL RALLY MODE.