EXCERPT:
"A surge in money supply measures reflect a mix of technical banking factors and investor unease, and isn’t a harbinger of an inflation surge, economists say.
While it wasn’t widely remarked upon when it was released last week, some in markets were taken aback by unexpectedly large increases in some of the broadest measures of money stock, as reported by the Federal Reserve.
Stone & McCarthy Research Associates flagged the second largest increase in the so-called M2 money stock measure — it captures cash and other highly liquid assets — on record for the July 4 week. Wrightson ICAP flagged an “explosion” taking place in M2, while Capital Economics said an internally created measure of money supply is growing at the fastest rate in two years.
What gives? Is the kindling of an inflation surge finally being lit? Or is something else afoot? Economists suggest the latter is most likely the case.
Showing posts with label Money and Banking. Show all posts
Showing posts with label Money and Banking. Show all posts
Tuesday, July 19, 2011
Thursday, June 30, 2011
Wednesday, December 30, 2009
The Monetary Base is exploding. So what? - Greg Mankiw's Blog
"An article in Saturday's Wall Street Journal says that some big-league investors are betting that inflation will rise significantly. The reason? 'The nation's exploding monetary base is a harbinger of inflation.' Is this right? Probably not."
Monday, November 30, 2009
Unease Over Banks' Hefty Reserves - WSJ.com
"There is a $1 trillion stash of cash idling in the banking system. It's too big to ignore, and it's a cause for concern.
In normal times, banks hold a bare minimum of funds in reserve to support their liabilities. But these bank reserves now exceed the U.S. Federal Reserve's regulatory floor by $1 trillion. Before the credit crisis intensified in September last year, excess reserves—effectively cash banks hold above their regulatory requirements and usually hate holding—totaled just $2 billion.
The Fed's extraordinary policies aimed at shoring up the economy and banking system are the reason excess reserves have ballooned. As the central bank prints money to buy, say, mortgage-backed securities, much of that extra cash ends up in the banking system, potentially as excess reserves.
So why do excess reserves create disquiet?
First, inflation hawks view them with distrust. In theory, these sleeping funds could be 'activated' to support a huge volume of new loans, which in turn could fuel demand and inflation. True, the Fed can increase interest payments it makes on excess reserves, which would encourage banks to keep holding them and not activate new lending. But that works only if the Fed doesn't wait too long to raise that rate."
In normal times, banks hold a bare minimum of funds in reserve to support their liabilities. But these bank reserves now exceed the U.S. Federal Reserve's regulatory floor by $1 trillion. Before the credit crisis intensified in September last year, excess reserves—effectively cash banks hold above their regulatory requirements and usually hate holding—totaled just $2 billion.
The Fed's extraordinary policies aimed at shoring up the economy and banking system are the reason excess reserves have ballooned. As the central bank prints money to buy, say, mortgage-backed securities, much of that extra cash ends up in the banking system, potentially as excess reserves.
So why do excess reserves create disquiet?
First, inflation hawks view them with distrust. In theory, these sleeping funds could be 'activated' to support a huge volume of new loans, which in turn could fuel demand and inflation. True, the Fed can increase interest payments it makes on excess reserves, which would encourage banks to keep holding them and not activate new lending. But that works only if the Fed doesn't wait too long to raise that rate."
Saturday, February 23, 2008
Treasurys Turn Back After Morning Rally - WSJ.com
Treasurys Turn Back After Morning Rally - WSJ.com: "Treasurys Turn Back
After Morning Rally
By MIN ZENG
February 23, 2008; Page B2
Treasurys were hammered in late-session trading as U.S. stocks turned around and following a hawkish warning about inflation risks from Federal Reserve Bank of Dallas President Richard Fisher.
The selloff Friday accelerated after CNBC reported that a bailout of financial guarantor Ambac Financial Group Inc. could be announced early next week, easing some concern about subprime-mortgage turmoil that has haunted the markets since last summer.
As investors dumped government debt to get into equities, the two- and 10-year sectors ended the week on a down note, giving up a rally in the morning session.
Mr. Fisher, in an interview with Bloomberg News, said he is hearing increasing expressions of concern about inflation from executives, which has 'gotten my attention.' He also said the U.S. probably will see slower economic growth rather than a deeper downturn.
Mr. Fisher, who is a voting member of the policy-making Federal Open Market Committee, voted against the Fed's half-percentage-point interest-rate cut Jan. 30 due to concerns about inflation and a belief the Fed's prior actions would be sufficient to get the economy back on its feet.
Worries over inflation have moved to the front burner after a higher-than-expect" consumer price index Wednesday, and as crude oil and gold set records. A weak dollar also added to the worries as it pushed up import prices.
After Morning Rally
By MIN ZENG
February 23, 2008; Page B2
Treasurys were hammered in late-session trading as U.S. stocks turned around and following a hawkish warning about inflation risks from Federal Reserve Bank of Dallas President Richard Fisher.
The selloff Friday accelerated after CNBC reported that a bailout of financial guarantor Ambac Financial Group Inc. could be announced early next week, easing some concern about subprime-mortgage turmoil that has haunted the markets since last summer.
As investors dumped government debt to get into equities, the two- and 10-year sectors ended the week on a down note, giving up a rally in the morning session.
Mr. Fisher, in an interview with Bloomberg News, said he is hearing increasing expressions of concern about inflation from executives, which has 'gotten my attention.' He also said the U.S. probably will see slower economic growth rather than a deeper downturn.
Mr. Fisher, who is a voting member of the policy-making Federal Open Market Committee, voted against the Fed's half-percentage-point interest-rate cut Jan. 30 due to concerns about inflation and a belief the Fed's prior actions would be sufficient to get the economy back on its feet.
Worries over inflation have moved to the front burner after a higher-than-expect" consumer price index Wednesday, and as crude oil and gold set records. A weak dollar also added to the worries as it pushed up import prices.
"Fisher really hit the market's nerve. His comments play into people's fear of inflation," said T.J. Marta, fixed-income strategist at RBC Capital Markets in New York. Inflation eats into the returns on fixed-income securities. "The Fed is basically fighting a two-front war with one weapon, and that isn't a good recipe."
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