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.

Inflationary expectations, as measured by the rates on certain market instruments, actually fell after the hike, indicating increased confidence that the ECB will keep a lid on price pressures.

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.

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.

If a government attempts to push the unemployment rate too low, inflation will increase, and so, too, will inflationary expectations.

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.

But what could take the place of the stable exchange rate as an anchor for monetary policy and for tying down inflation expectations?

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

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.

Being out of step also focuses attention on the fact that the ECB is in danger of losing control over inflationary expectations. The US Federal Reserve can cut 100 basis points from the federal funds rate and not lose control over US inflationary expectations.

The Fed has signaled that its federal funds rate will remain near 0 , at least as long as unemployment exceeds 6.5 and inflation expectations remain well anchored.

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.

Seminar expectations

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

Goals and expectations

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.

3baid writes about the price hike on cinema tickets from the the country's only operator.

But this history means that the true real long term interest rate was not as high in the 1980 s as our measures show, because long term inflation expectations must have been much higher than the one year inflation rate was at the time.

Others have lower expectations.

The expectations are high.

The current round of monetary easing underway in many advanced countries, together with strong expectations of renminbi appreciation, are also fueling currency speculation, placing further upward pressure on the exchange rate.

Indeed, some economists fear that a fiscal crisis could erupt even aftera tax hike is passed.

One of the first expeditions back in 1960, and a modern day hike to the top.

But a consumption tax hike is no panacea, particularly given the government s lack of a growth strategy.