Central Banks Ponder Going Beyond Inflation Mandates – Bloomberg 12-10-12

Stephen King at HSBC said inflation is not the central banks’ highest priority, and as long as people believe they are committed over the longer term to price stability, there is leeway to play for other objectives. HSBC said the MSCI All Country World Index will return 9 percent in 2013 on aggressive stimulus.

At Riksbank, Lars Svensson says keeping inflation too low hurts hiring, and Stefan Ingves worries about a debt bubble arising from low interest rates, which is restraining further cutting.

Stephen Oliner at the American Enterprise Institute says the Fed is poised to really blow up the balance sheet over the next year or more as their prime tool to combat unemployment.

Nathan Sheets at Citigroup said inflation in developed countries will slow to 1.7 percent in 2013 from 1.9 percent in 2012, and the Fed and other central banks will remain broadly expansionary through 2013 and probably well beyond. Sheets said central banks cannot maintain political credibility by focusing only on low inflation amid high unemployment and weak growth.

Societe Generale said interest rates in major economies near zero and QE facing diminishing returns may make policy makers consider fresh unorthodox tools.

Allen Sinai at Decision Economics said the impact on stocks from central banks’ concern for economic growth and employment is unambiguously positive. Sinai said central banks are much more focused on growth and have no choice but to maintain easy policies because the problem is too little growth, too high unemployment and too much debt.

Mark Zandi at Moody’s Analytics said central bankers are more confident in their understanding of inflation, have a track record of capping expectations, thereby bringing them room to be aggressive in other ways.

Larry Hatheway at UBS said the ECB’s proposal to buy bonds of countries that first agree to fiscal goals is unprecedented and moves beyond traditional central bank mandates.

A survey of economists gave an 8.8 percent probability of inflation being over 3 percent in the medium term.

Guillermo Ortiz at Grupo Financiero Banorte said that with inflation low, monetary authorities are right to concentrate on stabilizing their economies and financial markets.