Inflation is sleeping

- Overview: Inflation is sleeping
- Focus 1: United States: A new context for monetary policy "The deterioration in economic data has changed the monetary policy situation. Now, the debate is over another easing of monetary policy and the most appropriate way of achieving it. During his speech at the Jackson Hold symposium, Ben Bernanke claimed the Federal Open Market Committee (FOMC) was prepared to act if prospects were to deteriorate further, thus indicating an accommodative bias. Expanding the Federal Reserve’s balance sheet via the purchase of Treasuries seems to be the preferred solution to make monetary policy more accommodative. Even though the FOMC seems to be divided, the camp that is more in favour of further intervention, led by Ben Bernanke, seems to be in a position to impose its views. Ongoing job creations in the private sector in August limit incentives to act as of September. In the months ahead, however, the slowdown in growth (estimated at a trend of 1.5% in the second half of this year, i.e. well below FOMC projections) and the fact that private sector job creations are likely to be insufficient to reduce unemployment might convince the FOMC to adopt a new programme of purchasing Treasuries."
- Focus 2: Basel III: Capital requirements not without impact "On 12 September, the Basel Committee unveiled the new capital ratios under the so-called Basel III prudential reforms plus the timetable for their application. The new regulatory thresholds are equivalent to at least a tripling of capital requirements between Basel II and Basel III due to the redefinition of both the numerator and the denominator. However, the recapitalisation efforts accomplished since the financial crisis and a relatively stretched-out timetable for application will allow most major European banks to comply with the new requirements without substantial capital increases. Even so, implied market demands could lead to the deadlines being brought forward. A number of elements of the reforms (additional capital buffer for systemically-important banks, definition of the long-term liquidity ratio) are yet to be defined and the economic impact based on the known elements should therefore be considered only partial."

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