The euro’s 12-year low against the dollar is a mixed blessing for US companies. On the one hand, the US manufacturing sector is suffering from an uncompetitive currency and lower export revenues. But on the other, rock bottom European interest rates have given US companies an attractive opportunity to issue bonds denominated in euros and lock in cheap financing. For example, in the first quarte…Read the article
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…Read the article
Ben Bernanke has spent a good deal of time explaining on his blog why he thinks interest rates are so low (something that Martin Wolf wrote a column on earlier this week). An extremely quick and dirty summary is low nominal interest rates and yields can be explained by low inflation, however this doesn’t explain why real interest rates are also low. Bernanke doesn’t think low real interest ra…Read the article
The declining unemployment rate in the US has renewed the debate on the timing and pace of monetary tightening by the Fed. While wage pressures have been muted thus far, the risk is rising that further declines of unemployment will lower the rate below non-inflationary (NAIRU) levels and prompt the Fed to start hiking.
For emerging markets, one of the main transmission mechanisms is through wea…Read the article
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…Read the article
Historically I’ve struggled with the concept of gold as an investment. Presumably if you bought gold for this purpose you would want to store it somewhere safe and insure it. However, investors in gold should account for the fact that there is a cost to sleeping well at night. Vaults and insurance don’t come for free, and that cost can be thought of as a negative yield or the demurrage of gold….Read the article
Guest contributor – Eric Lonergan (Fund manager on M&G’s macro hedge-funds and multi-asset team, and author of “Money”)
We need more cash, not less.
Many economists just assume that central banks have hit “the zero bound” on interest rates and that conventional policy is thereby exhausted. Take Ken Rogoff’s bizarre proposal as an example:
Let’s forget about the idea of phasing out paper curren…Read the article
It has been a while since we talked about QE, but we covered this substantially in the past (see for example ‘Sub Zero?’, ‘QE – quite extraordinary‘ and ‘Quantitative easing – walking on custard‘). It now appears, at least for the time being, to be a part of monetary history in the UK, and more recently the US. However, it is being reapplied in Japan and about to do a grand tour of Europe. Our…Read the article
The developed world is going through an unprecedented demographic change – “global greying”. This change is having a massive impact on asset prices and resources as populations around the world get older and live longer. It is also having an impact on the effectiveness of monetary policy. We would typically expect older populations to be less sensitive to interest rate changes as they are large…Read the article
Interest rates – both short and long term – are at record lows in Europe. The driving force behind this is the belief that both employment and inflation will be lower for longer. This is something that concerns the ECB and Drahgi’s Jackson Hole speech implies further easing ahead. These appear to be exceptional times.
The story of how we got here is pretty simple: a global banking collapse in 2…Read the article