Wednesday, April 2, 2014

Central Banks Show Great Divergence

-By Jon Hilsenrath


Central banks have talked a fair amount in the past year about the merits of coordinating their policy responses more carefully. But look at the Wall Street Journal’s second quarter outlook for central banking, highlighted below, which shows that central banks around the world are truly going in their own directions.

The Federal Reserve is pulling back on a bond-buying program while the ECB contemplates new measures to stimulate economy growth and the Bank of Japan assesses whether it has done enough to push consumer prices toward its 2% goal. Central banks in Brazil and South Africa are pointing toward higher rates, while they’re heading down in Hungary and have already been cut in Israel. Canada has kept interest rate cuts on the table, while New Zealand has pushed them up. And many others are on hold.

The Fed has long downplayed the idea of global interest rate coordination – except in a crisis – and said central banks should pursue the policies that best fit their domestic needs. That seems to be exactly what’s happening.

Central Banking in 2014: A First Quarter Updates From 23 Economies Around the World.  Global central banks have navigated different currents in the first quarter of 2014 and are preparing themselves for a variety of challenges in the months ahead. Developed economies such as the U.S., Europe and Japan are still struggling with slow growth and uncomfortably low inflation. The Bank of England is holding interest rates low even as the U.K. recovery picks up steam. Emerging markets are bracing themselves for the Federal Reserve’s gradual winding down of its extraordinary stimulus measures. China’s central bank has engineered a depreciation of its currency, the yuan, amid signs of rising economic stress. Everybody is watching to see if the conflict between Russia and the West over Ukraine spills over to hurt the global economy. Here’s a guide to the individual outlooks for central banks around the world, compiled by our global staff of reporters and editors.

And if you want more, download our free e-book on new Fed Chairwoman Janet Yellen at

Yellen’s Human Message Gets Clouded. Janet Yellen‘s effort to humanize the Fed’s discussion of the economy by describing the plight of three individuals struggling to find full-time work in a speech Monday was clouded by the criminal records of two people she mentioned.

Is Wage Growth a Wild Card in ECB Thinking? European Central Bank commentators have written with various degrees of alarm about March’s inflation print of 0.5%. But another, more obscure, bit of data might also be significant, namely quarterly wage growth. It could even tip the balance in the ECB’s rate decision later this week. Data from the ECB’s Statistical Data Warehouse, highlighted by Dankse Bank economist Pernille Bomholdt Nielsen, show nominal wage growth in the euro zone at its lowest level in four years, having grown by only 1.4% in the fourth quarter of last year versus the previous year.

Euro-Zone Producer Prices Fall. Prices of goods leaving the euro-zone’s factory gates fell at an even faster pace in February, an indication that the currency area won’t soon escape a period of low inflation that may hinder its recovery.

ECB’s Constancio Says No Deflation Prospects for Euro Zone. The European Central Bank doesn’t expect the euro zone to slip into deflation, Vitor Constancio, the ECB’s vice president, said Tuesday.  ”It is important to underline that we see no deflation prospects,” Mr. Constancio told reporters in Athens.– Dow Jones Newswires

Lithuania Sees Low Inflation Easing Euro Entry. In an interview with Bloomberg News, Lithuanian Central Bank Governor Vitas Vasiliauska’s said the country’s inflation rate won’t scuttle the Baltic nation’s second bid to join the euro, and predicted his nation would become the currency bloc’s 19th member on Jan. 1.

U.K. House Prices Rise Again in March. Demand for U.K. homes remained resilient in March, pushing house prices higher for a 15th straight month, according to a survey Wednesday, doing little to alleviate concerns over a potential house price bubble that has the Bank of England closely monitoring the housing market.

Slowing Economy Leaves Chinese Leaders with Tough Choice. China’s manufacturing and property sectors slid further last month, leaving Chinese leaders with what economists said is a tough choice of accepting the economic slowdown under way or stimulating the economy at the risk of exacerbating longer-term problems.

China Central Bank Cracks Down on Bitcoin. China’s central bank has ordered the country’s commercial banks and payment companies to close bitcoin trading accounts in two weeks, according to people with knowledge of the matter, dealing another blow to the virtual currency. The new rules affect more than a dozen bitcoin exchanges, and are a further tightening of regulations the central bank put in place last year. Authorities have kept an eye on bitcoin’s expansion here as it poses a potential threat to financial stability and because it has attracted swarms of speculative retail investors looking for ways to make quick profits. China imposes strict capital and currency controls, but bitcoin, in theory, offers its holders a way to bypass those rules.

RBI’s Rajan Wants International Banks to Move Into India. International banks have yet to be enticed into setting up subsidiaries in India, but at some point the central bank may just have to push them, Reserve Bank of India Gov. Raghuram Rajan said Tuesday. India’s central bank issued rules last fall to allowing global banks to open subsidiaries here, hoping to get greater regulatory oversight of how they do business. But the foreign banks have so far shown little interest in setting up local units, hoping to avoid certain costs and lending requirements that come with being a full-fledged Indian bank. While the RBI was still trying to get international banks to voluntarily sign up for the new regulatory regime by trying to address some of their concerns, Mr. Rajan said that ultimately the central bank will have to take a stand.

Japanese Inflation Fails to Lift Spirits. Prices are finally rising in Japan after years of deflation, but for those whose wages aren’t going up, the higher prices are a bane rather than a boon. The price increases are the outcome of aggressive monetary easing, fiscal stimulus and a weaker yen. On Tuesday, the government raised the national sales tax, pushing prices higher and potentially making consumers more cautious. It is proving more difficult to get people believing that the price trends signal good times ahead. Many citizens have lived for over 15 years with falling prices and stagnant wages and are hard pressed.

Japan Inc. Expects Prices to Rise. A newly launched Bank of Japan price survey released Wednesday showed that domestic firms expect inflation of 1.5% in the coming year, a sign that deflationary pressure may be receding even though price growth expectations remain below the central bank’s 2% inflation target.

In Australia, Central Bank Gambles On the Housing Market.  Australia’s central bank is placing a risky bet that surging house prices won’t soon go into extreme overdrive, as it keeps interest rates at record lows to support the weak recovery in non-mining areas of the economy.

Russian Central Bank Won’t Ease Until June. The Bank of Russia is worried about high inflation and will not ease its monetary policy at least until June, the central bank’s chairwoman said Wednesday.—Dow Jones Newswires


U.S. Scales Back Spending on School Construction, Public Safety.  Still-tight government budgets are weighing down the construction sector. Spending on building schools, police stations, highways and other government projects declined 1% from a year earlier in February, the Commerce Department said Tuesday. The drop extends into 2014 a four-year streak of shrinking public outlays on construction. Last year, construction spending by federal, state and local governments fell 2.7%, a slightly deeper decline than in 2012. The latest numbers show that even as tax revenues increase and the effects of across-the-board federal budget cuts fade, the hit to the construction industry lingers.


-Brazil central bank meets to set interest rates

-Atlanta Fed’s Lockhart speaks at 12:30 p.m. EDT (1430 GMT)

-St. Louis Fed’s Bullard gives remarks at 5 p.m. EDT (2100 GMT)

-Kevin Brady (Rep., Texas), Chairman of the Joint Economic Committee, hold a hearing on how the Federal Reserve should promote stable prices, economic growth, and job creation at 2 p.m. Stanford University’s John Taylor and Mark Zandi of Moody’s Analytics will testify.


Harvard economist Martin Feldstein argues in an opinion piece in The Wall Street Journal that the Federal Reserve’s guidance on interest rates is lopsided because it does not offer any clues into what the central bank would do if inflation were to exceed its 2% target. “The Fed’s leaders should also be telling the public and financial markets what they think about the risk that future inflation could rise substantially above the Fed’s 2% target—and what the Fed would do to prevent such inflation or reverse it if that occurs.”


In the latest Chicago Fed Letter, two economists explore the dynamics of the U.S. fiscal cliff on incomes. They find that the prospect of tax increases induced both individuals and corporations to move forward certain spending decision into 2012 that would have otherwise been left for 2013.


- There are 4.5 million retail salespeople, the most of any U.S. occupation, followed by cashiers at 3.3 million.

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