Markets have welcomed the appointments, deemed “reasonable” by Elisabeth Andreew, chief currency strategist at Nordea. Analysts had worried the new government appointees would want to promote growth at the expense of fighting inflation; all three major agencies have cut Hungary’s government debt rating since November. The appointment of two former central bankers has reassured markets, as has their strong anti-inflation line at interviews today. Read more

In exactly a week, Hungary’s MPC will meet for the final time before four of the seven policymakers retire. New legislation, which has yet to be approved by parliament, is likely to see the central bank governor stripped of his right to choose who fills two of those four seats. A deputy governor today urged parliament to respect the central bank’s independence and reconsider the legislation.

“The credibility of Hungarian economic and monetary policy would increase if political forces made clear their commitment to central bank independence (and) price stability,” Julia Kiraly said, according to Reuters news wire. “Predictable economic policy can lead to lower risk and lower funding costs, which will be felt by both the country as a whole and citizens servicing their debt,” she said.

Analysts worry that government influence at the Bank could lead to a pro-growth agenda, with too little attention given to fighting inflation. Hungary has been downgraded by all three main issuers since November of last year with government debt issues now rated BBB-/Baa3. Read more

For what might be the last time in a long time, Hungary’s central bank has increased rates by 25bp. The thirdrise since November takes the rate on the key two-week bill to 6 per cent.

The rise was expected, partly as a result of inflation and partly politics. Inflation was 4.7 per cent in the year to December, considerably above the target of 3 per cent. Politics, because it’s assumed the MPC would want to raise rates before a significantly altered rate-setting committee takes over in March. Read more

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, has just offered a tutorial of sorts on the merits of dissenting opinions within the Federal Open Market Committee. In a speech, Mr Hoenig argues that the role of dissents in formulating policy is misunderstood, with too many believing that they are counterproductive and confuse the central bank’s message. On the contrary, Mr Hoenig says dissents are a very good thing, because they increase transparency, boost the institution’s credibility, and, incidentally, have been used previously – most notably in the 1980s when Paul Volcker, then Fed chairman, came close to losing a vote. Read more

“The strongly increased risks of central banks may act as a constraint on the room for manoeuvre in future monetary policy.” That is the worst case scenario laid out by new research from the Bank of Finland. The thoughtful, comprehensive analysis of eight central banks looks at unconventional tools adopted during the crisis, concluding: “The actions by central banks during the crisis raise a number of questions concerning exit from the measures taken, the impact of the measures, central banks’ risks and independence and their governance structures.”

The turn of the year – and the final post on this blog for 2010 – make a summary of this paper seem appropriate. Which of the unconventional tools – if any – will be discarded in 2011? Read more

One wonders why they asked. Hungary has again requested a legal opinion from the ECB on a draft law; the opinion is again highly critical; and once again the opinion is likely to be roundly ignored.

On July 1, Hungary’s Ministry of the National Economy asked the ECB for advice on plans to limit central banker pay; the ECB issued an opinion saying this was a bad idea; the Hungarian cabinet disputed the opinion and one week later they passed a law cutting the governor’s pay by 75 per cent, which became effective in September.

Some interpreted the ECB’s defence of Mr Simor’s exceptionally high pay* as cronyism. The ECB’s argument, however, focused on central bank independence. A country can’t join the euro, ran the opinion, unless its laws are compatible with those of the ECB: Read more

When the FT reported that senior Bank of England staff including Monetary Policy Committee members thought Mervyn King, Bank governor, had overstepped the line separating monetary and fiscal policy, the governor was dismissive.

He rounded on my excellent colleague, Daniel Pimlott, who asked him whether he had the unanimous support of the MPC in endorsing the political decision on the speed and scale of the new government’s deficit reduction.

“And, just for the record, I’ve spoken far less on this than almost any other central bank governor around the world; less than Ben Bernanke, less than Jean-Claude Trichet, both of whom have given speeches in great length and regularly. I haven’t spoken on this except in response to direct questions at the Treasury Committee, and when asked by the Coalition. So perhaps we’ll move on to a serious question about the economy.”

The problems Axel Weber, Bundesbank president, has faced over Thilo Sarrazin, the controversial Bundesbank board member, whose recently-published book shocked the country’s establishment, continue to attract headlines in Germany. The damage to the famously-reticent Bundesbank’s reputation was seen as a threat to Mr Weber’s chances of succeeding Jean-Claude Trichet when the European Central Bank president’s non-renewable eight year mandate expires in October 2011.

The Frankfurter Allgemeine Zeitung has been investigating the role played by Christian Wulff, Germany’s federal president, in negotiating a deal by which Mr Sarrazin agreed to resign. The thrust of its coverage is that Mr Wulff, in effect, imposed a deal on the Bundesbank, which ended up withdrawing its previous criticism of Mr Sarrazin and thanking him for his work as a board member.

The Federal Reserve rarely comments on the passage of a single piece of legislation. But this time, Ben Bernanke, Fed chairman, could not resist.

After winning all of the biggest battles in the fight over financial regulatory reform – cementing the Fed’s power while safeguarding its independence – Mr Bernanke put out a statement today praising passage of the bill in the Senate, calling it a “welcome and far-reaching step toward preventing a replay of the financial crisis.” President Barack Obama’s signature on the legislation is expected in the coming days. Read more

Janet Yellen has just released her statement to the Senate banking committee, where she – along with Sarah Raskin and Peter Diamond, other nominees to the Federal Reserve board - faces a grilling from lawmakers today on her bid to become vice-chair of the Federal Reserve replacing Don Kohn.

Ms Yellen, president of the San Francisco Fed, is predictably cautious as she introduces herself to the panel: “I am wholeheartedly committed to pursuing the Fed’s congressionally mandated goals of maximum employment and price stability and to strengthening our programme of supervision and regulation, building on the lessons learned during the financial crisis.”

Her statement gets a little meatier later on, and, reading through the lines, there are two main messages. On monetary policy, Ms Yellen still believes plan A is an eventual tightening. And to Congress, Ms Yellen is very clear: independence is crucial to central banking, so hands off the Fed ! Read more

The Hungarian cabinet has rejected the ECB’s opinion over a plan to cut central bankers’ pay, so the legislation will proceed to a vote next week.

The ECB feels the bill could compromise central bank independence. They argue the pay cut should only apply to successors of the current governor, Andras Simor, to allay concerns that the bill is intended to pressure current management. Adding to these fears will be the fact that the ruling Fidesz party has called for Mr Simor’s resignation. Read more

Archived - Money Supply

Economics blog

About this blog

Blog guide

Welcome. If you have yet to register on FT.com you will be asked to do so before you begin to read FT blogs. However, our posts remain free.

Opinions on market-moving economics and central banks around the world.

The Money Supply team

Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Claire Jones is the FT's Eurozone economy correspondent, based in Frankfurt. Prior to this, she was an economics reporter in London. Before joining the Financial Times, she was the editor of the Central Banking journal. Claire studied philosophy and economics at the London School of Economics. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Sarah O’Connor is the FT’s economics correspondent in London. Before that, she was a Lex writer, covered the US economy from Washington and the Icelandic banking collapse from Reykjavik. Sarah studied Social and Political Sciences at Cambridge University and joined the FT in 2007. RSS

Ferdinando Giugliano is the FT's global economy news editor, based in London. Ferdinando holds a doctorate in economics from Oxford University, where he was also a lecturer, and has worked as a consultant for the Bank of Italy, the Economist Intelligence Unit and Oxera. He joined the FT in 2011 as a leader writer. RSS

Emily Cadman is an economics reporter at the FT, based in London. Prior to this, she worked as a data journalist and was head of interactive news at the Financial Times. She joined the FT in 2010, after working as a web editor at a variety of news organisations.
RSS

Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS

Ben McLannahan covers markets and economics for the FT from Tokyo, and before that he wrote Lex notes from London and Hong Kong. He studied English at Cambridge University and joined the FT in 2007, after stints at the Economist Group and Institutional Investor. RSS