Aug. 27 (Bloomberg) -- European Central Bank council member Axel Weber said there's no scope for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump. ``Monetary policy at the moment is roughly where it should be and I think the discussion about declining rates in Europe is premature,'' Weber, 51, said in an interview in his office in Frankfurt yesterday. ``If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary.'' Europe's economy contracted in the second quarter and may not recover in the third, raising the risk of the region's first recession since the euro was introduced in 1999. Weber said the ECB, which increased its benchmark rate by a quarter point to 4.25 percent in July, remains focused on fighting inflation. Bond yields and the euro jumped. ``I don't expect inflation to come down necessarily just with weaker growth,'' Weber said. ``Inflation is still the No. 1 worry for central bankers in the euro region.'' ``Weber wants to keep the option open to raise rates next year,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. ``He wants to choke any rate-cut debate.'' http://www.bloomberg.com/apps/news?pid=20601087&sid=axhutEIlob3s&refer=home This guy must be suffering from dementia...
Actually Mr. Axel A. Weber is a professor and is the president of the Bundesbank. That is the central bank of the most stable and economically sound country of Europe. Here is a brief Curriculum http://en.wikipedia.org/wiki/Axel_A._Weber If you know something he doesn't know, why don't you post here YOUR curriculum ?
I wonder why everybody calls Bernanke an 'academic' and nobody says the same about Prof. Dr. Weber? LMAO
Ha, ha, ha...take a look at EUR / USD parity in the last couple of weeks and then tell me again about the "stability" of the European economy ! If ECB members prefer a hard landing - let them go - my EUR / USD short position will like it !
Is this your curriculum ? The Bundesbank has a 60 year long history, they made Germany a great and stable country, coming out of the devastating World war II, and you are watching a 2 weeks trade. But maybe you are right and they are wrong, yes, why not. But I still wish ECB gives 51% voting rights to Mr. Weber.
The ECB probably isn't wrong when it comes to Germany. Unfortunately, the ECB continues to act as if Germany is the only customer, and THAT is why the EZ is going to have the hard landing it will. The ECB believes it can actually control inflation. A quick look at the history of the life of the Euro Area (since it's inception) will tell you that's a pipe dream. You cannot concentrate on headline inflation when you have no control over it. The ECB could raise rates to 10%, and still all it would do is stroke inflation through the Euro's rise against the dollar, and the de facto rise of commodities because of the EUR/USD rate. The real truth (which the ECB cannot stand, I'm sure) is that only the Federal Reserve can cut back on the Euro Zone's inflation rate. If the Fed supports the dollar, commodities are dampened accordingly and headline inflation all over the world comes down as a result. But let them. I agree with Sus, I'm looking to short the hell out of the EZ in the next 5 years.
Sorry for the rudeness: did the FED propaganda brainwash everyone ? The issue here is "negative interest rates". I have a business, I keep receiving emails and faxes from my suppliers with price increases, 5-10% year and more. I pass this prices to my customers and they are buying. If my expectation are of increases of 10% a year, I can take a loan at 6%, fill up my warehouse with stuff, and gain 4% from inflation, and creating new money with the loan. If the expectations become entrenched, everyone acts like me. The suppliers manufacture the stuff, they employ people, salaries go higer. And that's the second round effect. In fact now we have negative interest rates, bond rates are too low, I'm advicing anyone to invest in inflation by buying stuff. If you find flaws in my reasoning, I'll thank you very much.
Does that mean you are short treasuries and bunds, long commodities and long EUR / USD or do you want to impress us with your "Volkswirtschaftslehre I" course ?
ONE FLAW YOU ARE ASSUMING THE MARKET PLACE WILL REMAIN THE SAME. (YOU CAN SELL THE STUFF AT A 4% MARKUP AND THAT YOUR CUSTOMERS WILL KEEP BUYING.) YOU ARE ASSUMING A LATERAL SHIFT IN BASIC ECONOMIC FUNDAMENTALS WHEREBY SLOWER ECONOMIC ACTIVITY DOES NOT IMPACT PRICES. THE ATTACHED DOCUMENT CLEARLY SHOWS THAT THIS HAS NOT BEEN THE CASE FOR THE LAST 40 YEARS. EVEN DURING THE STAGLATION 70'S PRICES HAVE FALLEN DURING RECESSIONS. YOU'RE ADVICE IS FAULTY YOU ARE ASSUMING A LATERAL SHIFT IN BASIC ECONOMIC FUNDAMENTALS. ALSO, BEAR IN MIND EUROPE AND JAPAN ARE AT OR NEAR RECESSION FURTHER CURBING DEMAND FOR GOODS. THE WHOLE ARGUMENT THAT THE REST OF THE WORLD IS DECOUPLED FROM THE US IS FALLACY. THE US ALONE IS 3X THE SIZE OF EUROPE, CHINA AND INDIA COMBINED. IF ARE ECONOMY GOES INTO RECESSION IT WILL BE MUCH WORSE FOR THE REST OF THE WORLD. YOU OUGHT TO BE TELLING YOU CLIENTS TO BE PREPARED FOR DEFLATION. YOU ARE SUFFERRING FROM RECENCY BIAS WHERE YOU ARE PROJECTING CURRENT TRENDS INTO THE FUTURE.