A complicated picture for central bankers meeting this week

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A complicated picture for central bankers meeting this week


NEW YORK: It is a common belief that the proverb "may you live in interesting times" is a curse. Central bankers from the world's top two economies, the United States and Japan, may well agree as they meet to make their respective interest rate decisions.

The United States has endured another week of market turmoil, with a crisis over the future of the investment bank Lehman Brothers following the seizure of the mortgage finance giants Fannie Mae and Freddie Mac the previous weekend.

Those events alone would have clouded the outlook for interest rates, but deteriorating economic data around the world has made the picture yet more interesting - or complicated - ahead of a meeting of U.S. Federal Reserve policy makers Tuesday.

The task is also complicated for the Bank of Japan, which starts a two-day meeting Wednesday amid recession fears stalking domestic markets and global inflation risks still to abate.

While commodity prices have started to ease, with oil falling to about $100 a barrel from a peak above $147 in mid-July, the declines partly reflect slowing global demand - bad news for the exporters that drive Japan's economy and further compounding the problems for policy makers.

picture is no clearer in the euro zone.

Inflation for August is expected to be confirmed at 3.8 percent Tuesday - roughly twice the level the European Central Bank is comfortable with - while sentiment among investors in Germany, the largest European economy, is likely to remain within sight of record lows, albeit slightly improved from the August level.

Meanwhile, the turmoil in financial markets makes it all the more difficult for investors to assess the direction in which they think monetary policy will move - and when....>

http://www.iht.com/articles/2008/09/14/business/econ15.php