US Fed Divergence of Opinion
ECB Tightening Bias = Tightening Action?
BOJ Only a Matter of Time?
Central Bank Speak
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US Fed Divergence of Opinion
Wednesdays FOMC meeting is anticipated to yield hawkish commentary but steady rates (see our report on how the new additions to the voting pool will affect US monetary policy ).
However, central bank, government, and international officials all have very different views of the US economy:
On the dove side:
Janet Yellen, Federal Reserve Bank of San Francisco President (Non-voting Member)
The Federal Reserve’s interest rate policy is about right even as a gangbusters labor market may fuel inflation going forward. - January 23, 2007
[U]John Lipsky, IMF First Deputy Managing Director
[/U] US consumption growth is likely to slow down in the near term as overall growth in the US returns to a more trend-like pace. Over the next few years, as the US savings rate re-normalizes, you cannot expect the US consumer to be the engine for global growth in the next 5 to 10 years. - January 25, 2007
In the hawkish corner:
Charles Plosser, Federal Reserve Bank of Philadelphia President (Non-voting Member)
At the time (Fall 2006), core inflation was running about 2.5 percent. That’s higher than I’d like to see it. - January 25, 2007
Robert Kimmitt, US Deputy Secretary of the Treasury
In the fourth quarter there was a significant increase in growth. We went into the end of the year with momentum on growth. The outlook is good. - January 29, 2007
ECB - Tightening Bias = Tightening Action?
European central bankers have remained staunchly hawkish in their commentary, but their failure to specify the term vigilance has kept expectations for monetary policy action on hold until March:
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Jean-Claude Trichet, European Central Bank President
We have a risk of second-round (inflation) effects with the increases in oil (prices) that we have seen, pump prices?There is a risk of starting an inflationary spiral. There are non-negligible risks of seeing past increases come in progressively. They have not all come out of the pipeline? Given all the risks, we must be credible, when we say: You can trust us in five or 10 years on our definition of less than 2%, close to 2%. - January 29, 2007
Axel Weber, European Central Bank Governing Council Member
Most economists expect oil prices to rise again?We should not let ourselves be reassured if the pressure on prices declines somewhat in the short term due to falling oil prices?If the next wage round comes out too high and jeopardizes price stability, further interest rate increases could be required. - January 29, 2007
Lorenzo Bini Smaghi, European Central Bank Executive Board Member
The European Central Bank’s interest rates of 3.5 percent are still accommodating in the current economic situation. - January 23, 2007
In a medium term perspective, inflation is seen hovering around 2 percent. An increase in growth, if sustained over time, requires an adjustment in monetary conditions. - January 29, 2007
Juergen Stark, European Central Bank Executive Board Member
Inflation rates are predicted to hover around 2 percent in 2007 and 2008 respectively with risks to the upside stemming from both economic and monetary dynamics. The ECB will always do what is necessary to maintain price stability. - January 26, 2007
BOJ - Only a Matter of Time?
The Bank of Japan is extremely cautious regarding economic conditions, but clearly still wishes to normalize rates. Meanwhile, fiscal officials appear relieved that the independent central bank decided to leave the benchmark rate steady in January:
Toshihiko Fukui, Bank of Japan Governor
There was a difference in views between those who thought we could shift policy based on available data and those who thought we could spend more time to collect more data. I think there is a chance for the difference to narrow relatively quickly after we see more indicators and analyze them, but there is also a chance that it may not narrow. At the moment, this is uncertain. - January 24, 2007
Miyako Suda, Bank of Japan Board Member
If there is a high level of uncertainty, where there are widely varying views on the future economic outlook, careful analysis and time are needed to read the trend out of mixed indicators ? but even so, by taking too much time in confirming (data), there is a risk of being too late in raising rates, forcing us to step up the pace of future rate hikes ? That would result in causing big swings in economic activity and may hurt price stability in the long run. - January 25, 2007
[U]Hiroko Ota, Japanese Economics Minister
[/U]The data showed that core CPI is moving near zero?there is no change in price conditions?I can’t say for certain (that deflation wont return) after just the CPI data. I’d like to watch other indicators. - January 26, 2007
Koji Omi, Japanese Finance Minister
Some people seem to think prices should rise. But the economy is growing smoothly and I don’t necessarily think it’s better to have prices rising. - January 26, 2007
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