May 28, 2024
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Bowman - The Federal Reserve's Balance Sheet as a Monetary Policy Tool: Past Lessons and Future Considerations

Michelle Bowman discusses the use of the central bank balance sheet as a monetary policy tool. She reflects on the benefits and costs of large-scale asset purchases (LSAPs) by examining the Federal Reserve's use of the balance sheet following the 2008 financial crisis and during the COVID-19 pandemic. The post-2008 LSAPs were effective in supporting the economic recovery, lowering longer-term interest rates, and easing financial conditions. However, the response to the pandemic raises questions about the appropriateness and timing of the balance sheet policy. Bowman suggests that the FOMC could have begun tapering and ending asset purchases earlier in 2021 to address emerging inflationary pressures. She also emphasizes the importance of effectively communicating future changes to balance sheet policy and considering the composition and maturity structure of the Federal Reserve's securities holdings.

Positivity: 80
Uncertainty: 50

May 28, 2024
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Schnabel - The benefits and costs of asset purchases

Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at the 2024 BOJ-IMES Conference on “Price Dynamics and Monetary Policy Challenges: Lessons Learned and Going Forward”

In her speech, Isabel Schnabel discusses the use of asset purchases as a monetary policy tool. She highlights that asset purchases can be effective in stabilizing financial markets during periods of turmoil but emphasizes the need for central banks to carefully assess the benefits and costs outside of these periods. She explains the two main purposes of asset purchases, which are to respond to disturbances in monetary policy transmission and to ease financing conditions near the effective lower bound. Schnabel discusses the different transmission channels of asset purchases and the state-dependent nature of their effects on activity and inflation. She also acknowledges the potential side effects of asset purchases, including risks to central bank balance sheets, market functioning, financial stability, and inequality. Schnabel concludes by noting that asset purchases should remain part of central banks' toolkit, but a more targeted and parsimonious approach may be necessary to reduce costs.

Positivity Score: 70
Uncertainty Score: 50

May 27, 2024
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Lane - Inflation in the euro area

Speech by Philip R. Lane, Member of the Executive Board of the ECB, at the Institute of International and European Affairs, Dublin

The speech by Philip R. Lane focuses on inflation in the euro area and its implications for monetary policy. He analyzes various inflation indicators, noting the decline in both headline and core inflation since August 2023. Services inflation is highlighted as the main driver of overall inflation, while other categories have seen declines. Lane also discusses the improved measures of underlying inflation and the narrowing breadth of domestic inflation dynamics. He examines wage developments, noting that overall wage pressures have moderated and that wage trackers have decelerated. The impact of higher wages on price pressures and the role of labour productivity growth are also discussed. Lane concludes by mentioning short-term inflation forecasts and the potential for further disinflation in 2025, outlining the implications for monetary policy and the need for a data-dependent approach in determining the appropriate rate path.

Positivity: 80
Uncertainty: 30

May 26, 2024
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Cipollone - Europe’s tragedy of the horizon

Speech by Piero Cipollone, Member of the Executive Board of the ECB, at the Festival dell’ Economia di Trento

In his speech, Piero Cipollone highlights the urgent need to combat climate change and the growing costs associated with it. He emphasizes that Europe is particularly affected by climate change and that further action is needed to meet climate targets. Cipollone discusses the implications for central banks, including the impact of extreme weather on inflation and the economy, and the financial risks for central bank balance sheets. He explains the ECB's role in addressing climate change through its monetary policy framework, supervisory responsibilities, and efforts to reduce the organization's environmental footprint. Cipollone also highlights the complementarity between monetary policy and other policies aimed at cushioning supply shocks, mitigating the negative impact of climate change on productivity, and mobilizing funding for the green transition. He emphasizes the need for collective efforts and coordination between central banks and elected governments to achieve the green transition.

Positivity Score: 70
Uncertainty Score: 30