European Central Bank governing council member Axel Weber, the president of Germany's Bundesbank, said he would like the euro area's main interest rate to be cut no further than to 1%.
In relation to the current situation, I see the threshold of 1 % as the lower limit, Weber said
Weber said the ECB had already driven massive interest rate cuts, but that the bank wasn't out of room to maneuver. In recent meetings, the ECB has warned of interest rates going much lower.
He added that the Eurozone will reach zero inflation ?this summer? and that level will remain there for ?one or two months?. ?This,? he explained, ?has nothing to do with deflation and will help increase purchasing power.
The price action on the majors has been interesting this week. We saw the majors rise heading into the cash markets as S&P futures rose on Monday, only to decline sharply when stocks stalled after their sharp advance. Prices than rose again after Wall Street closed. Later, we saw Monday's intraday support levels hold in the overnight session and we saw the highs from Monday act again as resistance. Bottom line; currencies are in a range this week and until we see a clear break either way, it will be hard to see the overall trend.
It appears from remarks from President Obama this morning that the agenda of the U.S. at the G20 summit meeting will be a globally coordinated stimulus.
Former Federal Reserve chairman Allan Greenspan, responding to charges that his low interest rates caused the
housing bubble, fights back in the WSJ. He says it wasn’t “easy money” that did the harm, but rather excess savings in countries like China that pulled down rates at the long end, causing a divergence
between mortgage rates and the Fed funds rate.
“Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have prevented the housing bubble.”
Greenspan used to think it was the job of the government, in the form of the Fed, to prevent bubbles. That was his stance going in to the Fed just before the crash in Oct 1987, something that is well-documented in the many books on his long tenure at the Fed (and something that caused quite a stir when it was disclosed from FOMC minutes many years later).
“If it is monetary policy that is at fault, then that can be corrected in the future, at least in principle,”
Greenspan wrote. “If however, we are dealing with global forces beyond the control of domestic monetary
policy makers, as I strongly suspect is the case, then we are facing a broader issue.”
He lost his appetite for interference though, once he became Fed chairman. This is an issue that has yet to be hashed out in full, but to blame the Chinese for Fed policy and the Fed’s ideological stance will not pass the test of time.
To add insult to injury, Greenspan also says policy-makers should avoid “heavy regulation” in resolving
the crisis. The solutions are “higher capital requirements and a wider prosecution of fraud, not increased
micromanagement by government entities,” he says.
Governments need to “ensure responsible risk management on the part of financial institutions while encouraging them to continue taking the risks necessary and inherent in any successful market economy.” ?