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The look ahead: Central banks on three continents weigh monetary policies


Economists and investors will be keeping a close eye on the US Federal Open Market Committee, which begins two days of meetings on Tuesday.

The US economy, which was strong through the end of 2011, has slowed this year. And that has caused Federal Reserve Chairman Ben Bernanke to discuss ways to keep the US from falling into another recession. Bernanke told lawmakers this month that consumers and employers were becoming more cautious at a time when Europe's financial markets and economy remain under significant stress.

“The possibility that the situation in Europe will worsen further remains a significant risk to the outlook,” Bernanke told the US Senate Committee on Banking, Housing, and Urban Affairs.

In 2008, the committee cut the benchmark rate target to between 0% and 0.25% in an effort to spur economic activity during the recession. The committee expects to keep the rate low until late 2014, and “is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labour market conditions,” Bernanke told congressional leaders.

What comes of the two-day meeting in Washington could add context to several economic reports due out in the week ahead, including a report Tuesday on consumer confidence and the July employment situation report, due out August 3rd.

“Although declines in energy prices are now providing some support to consumers' purchasing power,” Bernanke told congressional leaders this month, “households remain concerned about their employment and income prospects and their overall level of confidence remains relatively low.”

Europe’s saga continues

The euro-zone crisis is escalating as Spain’s borrowing costs inch up and Germany risks having its debt rating downgraded. With five euro zone members in bailouts and another recession possible, the European Central Bank may consider lowering interest rates again when policymakers meet Thursday.

The ECB has already taken the benchmark to a record low of 0.75%, but ECB President Mario Draghi signaled in early July that policymakers may be open to another rate cut, Bloomberg reported.

Two economic indicators will help them decide. On Monday, the European Commission releases July data for the Economic Sentiment Indicator, which measures business and consumer sentiment across the EU and euro zone. On Tuesday, Eurostat follows with June jobless data for the euro zone and EU.

The jobless rate has been moving up relentlessly and little relief is in sight. In May, 11.1% were unemployed across the euro zone. In Spain, the unemployment rate reached 24.6%.

The ESI has been on a downward trend, falling for the third month in a row in June within the euro zone. Consumer confidence data the European Commission already released for July suggested a further decline.  Consumer confidence declined to minus 21.6 from minus 19.8 in June. The July figure was the lowest since August 2009.

India considers easing

Reducing borrowing costs at its next policy review meeting Tuesday would give the Reserve Bank of India a chance to try to stoke an economy that is growing at its slowest pace in nearly a decade—if there weren’t rising food prices and a weak currency.

The rupee has decreased 19.5% in value against the US dollar in the past year, which increases inflation risks.

In June, India’s consumer-price index was up 10.02% from a year earlier, reported the Ministry of Statistics and Programme Implementation. That was slightly lower than in May, but insufficient monsoon rains are expected to boost food prices again.

India’s central bank lowered borrowing costs 0.5 percentage points to 8% in April but made no changes in June, Bloomberg reported. Economists and analysts projected that policymakers will keep interest rates steady once again.

Sarbanes-Oxley at 10

An exploration of the US Sarbanes-Oxley Act by its sponsors on its tenth anniversary kicks off in the week ahead.

Former Sen. Paul Sarbanes and former U.S. Rep. Mike Oxley will participate in a discussion of the corporate governance law that bears their names from 3 to 4pm on Monday, the anniversary of the act’s signing.

The Center for Audit Quality, which is affiliated with the American Institute of CPAs, is sponsoring the event, which will be held at The George Washington University in Washington. Mark Beasley, director of the Enterprise Risk Management Initiative for the North Carolina State University Department of Accounting, will moderate the panel.

Video of the forum will be available on the website of the US Securities and Exchange Commission Historical Society.

FASB works on financial instruments

Two elements of the ongoing convergence project on financial instruments are on the agenda for the US Financial Accounting Standards Board (FASB) meeting on Wednesday.

FASB will discuss classification and measurement as well as impairment of financial instruments in a project the board is undertaking jointly with the International Accounting Standards Board (IASB). The board also will discuss insurance contracts and effective control for repurchase agreements.

In the afternoon, FASB will hold an educational session on insurance contracts, investment properties, investment companies, and impairment in the accounting for financial instruments project. FASB’s meetings will be available via webcast on the board’s site.

—From CGMA Magazine staff reports

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