By Brian Kesten

The Federal Reserve increased the federal funds rate for the first time in nearly a decade this past December, raising the target rate from 0-0.25% to 0.25-0.5%. Yet the Fed’s historic move to raise rates is dwarfed in significance by the actions of the European Central Bank (ECB), the Bank of Japan (BoJ), and the Swedish Riksbank: the unprecedented negative interest rate policy. This marks the first known monetary move below the zero lower bound, previously thought to be the hard floor on interest rates.

In effect, the central banks in Europe and Japan are charging fees for holding required and excess reserves parked at the central bank by domestic financial institutions. Austerity programs and fiscal deficit fears have stifled growth in the Eurozone and Japan, so the central banks in these nations essentially bear the mantle of stimulating economic growth, with fiscal spending and tax reductions off the table. Before implementing negative interest rates, the ECB, the BoJ, and the Riksbank engaged in quantitative easing programs, aimed at flooding financial institutions with liquidity that the commercial banks could invest in domestic industries in the form of business and home loans.

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March 02, 2016

By Derek Hunter

The European Central Bank (ECB) announced on Thursday that it would begin its new quantitative easing program on Monday, March 8th. The markets have been anxious for the start of the ECB’s bond buying program, which has the potential to stimulate Europe’s stagnating economy. However, the ECB’s bond buying programs comes on the heels of the twelfth consecutive robust U.S. jobs report. As the Wall Street Journal discusses, the Euro is likely to approach parity with the U.S. Dollar as conditions in Europe continue to decline while economic indicators continue to point towards a steadily improving U.S. economy.

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March 23, 2015

By Sam Willie

The Wall Street Journal covers the latest chapter in the Greek debt drama. This past week Greek Finance Minister Yanis Varoufakis said he was “certain” Greece would have a problem “paying off the installments of the IMF.” The IMF has an outstanding loan of $20 billion to Greece, and $1.7 billion of that loan is due in the coming weeks. It is suspected that Greece may be angling for support to issue more short-term debt and renegotiate more favorable bailout terms with the IMF and the European Central Bank. Critics note that failing to pay the IMF would make Greece the first advanced economy in the Fund’s existence to fall into protracted arrears, and would seriously undermine any efforts by Greece to obtain financing in the future.

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March 20, 2015

By Derek Hunter

Early in the financial crisis the Federal Reserve and Bank of Japan initiated a policy of quantitative easing (QE), which is an extraordinary form of monetary policy where a central bank purchases certain securities to infuse capital into the financial system. By essentially printing money, a central bank hopes to stem any deflationary risk, incentivize lending, and stimulate the economy. The European Central Bank is finally hopping on the QE bandwagon as the Eurozone risks falling into another recession. As The Economist explains, unlike in the centrally controlled U.S. and Japanese economies, the Eurozone federation will face unique economic and political challenges in implementing QE across several different countries.

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February 16, 2015

By Derek Hunter

In mid-2012, many experts were betting that the Eurozone would fall apart -- southern European countries couldn’t access retail bond markets, and northern European countries were not prepared to help. But Mario Draghi, the president of the European Central Bank (ECB), vowed to do “whatever it takes,” and announced the Outright Monetary Transactions program, where the bank would buy large volumes of the government bonds of distressed countries. Now, several German plaintiffs are arguing before the European Court of Justice that “whatever it takes” was actually illegal, and beyond the scope of the ECB’s power.

The Wall Street Journal discusses the legal issues in the case, and how a ruling against the ECB could jeopardize current programs.

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October 22, 2014

By Sam Obenhaus

On Wednesday, November 20, the European Central Bank took a major step towards integrating the euro zone’s financial markets when it nominated Danièle Nouy to serve as the first “Single Supervisor” for major banks across the continent. If confirmed by the European Parliament, she will lead one of the world’s most important start-ups.  The Single Supervisor’s office is still in the process of hiring staff and it does not gain the legal authority to start regulating banks until the end of next year.

The task facing Nouy is hugely important for the future of the euro zone.  One of the chief criticisms of the zone is that oversight of its banking system remains balkanized.  The hope is that installation of a Single Supervisor, along with the first set of stress tests that subject the zone’s banks to the same set of standards, will address this persistent criticism.

The New York Times has more on this story.

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November 26, 2013