ECB - Setting the Stage for December

ECB Setting the Stage for December
US Fed No Consensus
BOJ Awaiting Evidence

ECB Setting the Stage for December

Central bankers clearly still see inflation as a major risk:


  Jean-Claude Trichet, European Central Bank President
 
Even more than at the last press conference, I would say nothing that would distract the present market expectations as regards what could happen until the end of the year. That's absolutely clear. November 2, 2006
If our assumptions and baseline scenario are confirmed, it will remain warranted to further withdraw monetary accommodation ? with regard to consumer prices, annual HICP inflation rates, not withstanding their decline in most recent months, will remain elevated at levels above 2% in 2006. As regards 2007, inflation risks remain on the upside. November 2, 2006 


 Axel Weber, European Central Bank Governor

Said that consumer price inflation is set to top 2% in 2007, and possibly longer, adding It's a signal that I find alarming. November 6, 2006
  
However, fiscal officials in the Euro-zone beg to differ:    : 

 Pedro Solbes, Spanish Economy Minister

In the light of what is happening with inflation in the short term, probably to use the word alarming is not?correct. When asked whether Euro-zone inflation will fall below 2% in 2008, he responded, I think it's a possibility. November 6, 2006

 Karl-Heinz Grasser, Austrian Finance Minister

Said that inflation is under control and that economic policy reform will help to ease inflation. As far as the ECB is concerned we have to implement structural reforms?to give leeway to the central bank. November 6, 2006


US Fed No Consensus

Some central bankers are cautious of the challenges facing the economy:

 Ben Bernanke, Federal Reserve Chairman

Monetary policy is a blunt tool that cannot target industries, population groups or regions ? at the same time, however, the gaps between lower-income households and other households with respect to the measures of opportunity remain wide?Although the emergence of risk-based pricing has increased access to credit for all households, it has also raised some concerns and questions, which are magnified in the case of lower-income borrowers. November 2, 2006



  Susan Schmidt-Bies, Federal Reserve Governor

Inflation appears poised to decelerate in coming months as energy prices stabilize and resource pressures ease. November 3, 2006

While some appear to be split on maintaining growth and fighting inflation:

We're flying at a less than optimal altitude in terms of the speed of the economy ... and the good news is that ... some inflationary pressure has been released. I'd like to see us gain a little more altitude. But I'm very comfortable with where we are right now in terms of monetary policy. October 31, 2006
We do have a dual mandate to keep price pressures in check and promote maximum sustainable growth, but no central banker can tolerate inflation. November 3, 2006

However, some hawks will never change:


 Michael Moskow, Chicago Federal Reserve Bank President

A new rise in interest rates may be necessary to fight against inflation in the US. November 6, 2006

  Sandra Pianalto, Cleveland Federal Reserve Bank President

I do not believe that inflation will accelerate further.  In fact, I expect some slowing in the rate of inflation as recent energy price changes and the effects of monetary policy actions work through the economy.  But some risk remains that inflation will not recede into a range consistent with the FOMC's price stability objective.  In that event, it is possible that some additional monetary policy restraint would be required. November 6, 2006

BOJ Awaiting Evidence

Central bankers remain hawkish on the economy:

 Toshihiko Fukui, Bank of Japan Governor

Recent weak economic data here and in the US have not changed the central bank's intention to gradually increase interest rates in the long term. October 31, 2006

Hikes will come not too soon, or not too late. If I am asked whether or not there is any chance for another rate hike before the end of this year, I would say I do not rule this out. November 1, 2006

"Waiting for inflation to build up in raising interest rates would cause sharp swings in the economy. Our task ... is to carefully take action before these conditions appear in order to achieve price stability and keep future economic swings gradual." He adds that normalizing monetary policy will not take "five years or even a longer period of time," compared with fiscal consolidation efforts, which tend to take "a very long time." November 6, 2006

It is hard to pinpoint when household incomes will show a clear picture of improvement but I think it will be realized during the course of fiscal 2007. November 2, 2006

        
Some fiscal officials see no reason for monetary policy action:

 Koji Omi, Japanese Finance Minister

Monetary policy is in the jurisdiction of the BOJ but with no worries of inflation now, we hope the BOJ supports the nation's sustainable economic recovery through monetary policy. October 31, 2006

While others remain more concerned with yen weakness:

 Hiroshi Watanabe, Japanese Vice Japanese Finance

Japan's economy has pulled out of bad times and is likely to maintain solid growth. As such, the Japanese currency should not weaken from internal reasons. November 2, 2006