A Good Rate Hike for Europe

Ready for a US Rate Hike?

Even the doves might support a rate hike in September to counter act the charge that they are being bullied out of a September hike by Sarkozy.

Indeed, even the markets were fooled, giving the ECB a good grade for its unremarkable rate hike.

Others spoke out as well, and the futures markets quickly predicted another 25 basis point rate hike in March.

But such an insignificant rate hike will do little to relieve long term pressures, because investors will expect more rate hikes and move money into China, increasing upward pressure on the yuan s exchange rate.

At the ECB press conference in early July, Trichet signaled at least one more rate hike either in September or October.

But the recent good economic numbers coming out of France should make an October rate hike easier for French politicians to accept.

Japan s Tax Hike Test

The ECB s paltry rate hike in December, together with the supine promise of no plans for further monetary tightening, demonstrates that Trichet is no Duisenberg.

Although the meager rate hike was presented as a consensus of the ECB s Governing Council, it soon became apparent that the decision had been controversial.

Trichet even had to rescind the rate hike he had signaled for September, though he still claims the increase has been merely postponed, not abandoned.

At the ECB press conference in early July, Trichet signaled at least one more rate hike either in September or October. Some Council members are known to support two more rate hikes before year end.

First, the divergence of monetary policies between the US and other major economies is already universally understood and expected. Thus, the interest rate differential, like the US rate hike itself, should already be priced into currency values.

Without a strategy for growth, an effort to reduce government spending, and a policy to stop deflation, a tax hike will not solve the problem.

However, late last year, Everbright Bank and some others began offering fixed rate mortgages. Take up has been slow, but the April 2006 surprise hike in bank rates may help to sow greater public awareness of interest rate risk.

For the first time, the ECB president was willing to admit publicly that the Governing Council had discussed the pros and cons of a rate hike at the meeting.

This threat took a heavy toll on the ECB s credibility, since an interest rate hike in the midst of the most serious financial crisis in decades was obviously absurd.

This implies an interval of two months between interest rate moves instead of the three month interval that has become standard ECB practice in the current interest rate cycle. The next rate hike in the normalization process is expected in October, two months after the expected August move.

This is precisely what happened in September, when the financial crisis made it impossible for the ECB to proceed with the interest rate hike that it had announced in August.

A tax hike is only part of that.

The European Central Bank s policy rate stands at 0.75 , while the eurozone s annual inflation rate is 2.5 .

Monetary policy is now drawing on a more comprehensive toolkit, such as the policy rate, the interest rate corridor, required reserve ratios, and the reserve option mechanism.

In other words, the very policy that was supposed to achieve greater energy security is in fact likely to hike prices and lead to greater reliance on foreign energy imports.

Likewise, the Bank of England keeps its policy rate at only 0.5 , despite an inflation rate that hovers above 2 .

So, sooner or later, a tax hike will be necessary.

Some have gone as far as proposing NIPR (negative interest rate policy).

An independent monetary policy requires a flexible exchange rate, not a revaluation.

There is, of course, a vigorous ongoing debate about China s exchange rate policy.

For example, to make his threats of an interest rate hike in the midst of a global slowdown credible, the ECB president is using his press conferences to tell the world how strong European growth is.

A hike, in other words, would indicate that good things are happening.

The best season to hike the trail is from April to October.

But China s monetary policy has been hamstrung by the tightly managed exchange rate regime.

Still others dismiss the change in Chinese exchange rate policy as beside the point.

exchange rate and trade policies, or even the complete set of fiscal policy instruments.

The European Central Bank should reverse its mistaken decision to hike interest rates.

From the weather, we move to a crazy price hike in cinema tickets.

Today an inflation rate of close to zero is the accepted goal of US policy.

At its most recent policy meeting, the ECB left its policy rate unchanged, citing inflation half a percentage point above the official 2 target.

In doing so, he would avoid the criticism that former Bank of England Governor Mervyn King faced for supporting a consumer tax hike in 2011 but failing to use monetary policy to offset its recessionary effects.

Now, to find dinosaurs, you hike around in horrible conditions looking for a dinosaur.

Global capital markets would recognize that a country with high unemployment might choose to pursue an inflationary policy or a policy or exchange rate depreciation.

Without comprehensive reform under strong political leadership, a tax hike alone cannot solve Japan s problems.

According to Brown, the tax hike would be temporary, yet it would last seven years.

But Japanese policymakers, media, and academics largely continue to favor a sudden and substantial hike.