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Author profile

Richard Woolnough

Years in the bond markets: 30

Specialist subjects: Government and corporate bonds

Likes: Running, cycling

Heroes: Mohammed Ali, Winston Churchill

16.05.05-RW-blog1

Negative rates – a tax on saving? Don’t forget about actual tax

There has been much discussion recently that by introducing negative rates central banks are effectively taxing savings. This is self-explanatory, and is one of the criticisms of how negative rates can distort economic behaviour. This however is not a new phenomenon.  Let’s not forget that money has always been effectively clipped by the traditional enemy of savers – inflation. Fortunately, hol…

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16.01.18-RW-blog

The US economy is not heading for recession, as it’s not FIRING on all cylinders!

There is currently a lot of concern regarding the US economy and its ability to withstand the collapsing price of oil and mined commodities, the Chinese slowdown, and the recent quarter (yes, quarter) point rate rise – or given the current market mood, its ability to cope with a doubling of the Fed funds rate! Whilst high yield spreads are close to recessionary levels, this is skewed by the ene…

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The effect of changes in oil prices on the price of one litre of petrol in the UK

Oil price fall failing to pump deflation

One of the major factors that has enabled inflation to stay low despite the economic strength in major western economies has been the fall in the price of oil. Given the huge price volatility over the past 18 months it is interesting to depict the falling influence of oil on actual end inflation.

In the UK, the most direct way that changes in the oil price affect inflation is through petrol pri…

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15.10.28 blog RW1

The real data – the Phillips curve is alive and well

One of the first rules of economics is that the equilibrium market price is generated by relative supply and demand. Limited supply or excess demand should result in an increase in price. One of the questions that has arisen in the post financial crisis world is why have wages not increased despite unemployment heading towards historically low levels? Given the improvement in data such as headl…

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2015-09 blog RW

We are there – nothing to fear

The Bank of England’s Monetary Policy Committee (MPC) are due to meet on Thursday and most economists expect a dovish set of minutes to accompany the announcement of no change in the BoE base rate. Additionally, the minutes will likely emphasise the risks of a persistent undershoot in UK inflation given the continued fall in commodity prices and waning global demand. Despite these risks, the MP…

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The inherent monetary policy lag

Timing the Fed Rate Hike

The graph below shows US unemployment alongside the Fed rate over a period of 45 years. From this you can observe the broad relationship between the two, specifically the time delays between Fed rate hikes and the upturn in employment which has historically followed. This time the Fed have delayed the rate hike for a number of reasons, but if history is anything to go by, we can perhaps use thi…

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Blog_Richard_May2015-1y-avg

The US unemployment report: challenging the payroll consensus

The US unemployment report for April highlighted the continuation of the economic recovery. The market is now in the habit of viewing a job creation number of anything less than 200,000 as a weak result for the labour market and anything more than 300,000 as a strong result. Anything in between and the conclusion amongst economists is this: the Federal Open Market Committee (FOMC) is on hold, e…

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15.04.16 blog RW

Greece, the currency vigilantes and the Expulso solution

It has been a while since we have discussed the economics of the single currency, but once again the issue of its suitability for all its members is at the forefront of economic concerns, as Greece faces some difficult decisions.

The financial crisis has taught us a number of lessons: fiscal policy works, monetary policy works, better regulation is beneficial for the financial sector, confidenc…

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Operation normalise

The Fed has basically used three major themes in response to the financial crisis from a monetary point of view:

  1. Lower short term rates
  2. Quantitative easing
  3. Operation twist – an attempt to flatten the yield curve

The Fed has communicated that it now expects the first move in normalising rates as the economy recovers will be to increase short term rates. Personally I think there are other alter…

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The zero bound debate – are negative rates a tightening of policy?

Matt’s and James’s recent blogs outlined some of the issues markets face when rates go negative. This is obviously no longer just a theoretical debate, but has real investment implications. Why do investors accept sub-zero rates when they can hold cash ?

To recap using Swiss Francs for example, it makes sense for a saver from a purely economic view not to deposit a Swiss Franc note into a negat…

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