Wednesday, August 10, 2011

Is Our Central Bankers Learning?

Twice in the past three days, important central banks have actually done something slightly positive.  Sunday night it was the European Central Bank deciding to intervene in the Italian and Spanish sub-sovereign bond markets.  Yesterday it was the Federal Reserve setting expectations on how long it plans to keep its current low-interest rate policy.  The ECB's intervention has worked, at least temporarily, as the interest rate premiums for both countries vs. Germany have dropped sharply (divide the numbers by 100 to get real world units).  The Fed's statement was aimed at general sentiment, not any specific index, so it's a little early to say if it worked.

In both cases, however, the gap between what is being done and what should be done is still far too wide.  Hopefully, these two actions were just first steps towards more sensible policies.

Update: 2011.08.11: Yves Smith talks about the central bank actions.

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