Pension Pulse

Robin Harding of the Financial Times reports, BoJ launches new form of policy easing : The Bank of Japan has launched a new kind of monetary easing as it set a cap on 10-year bond yields and vowed to overshoot its 2 per cent inflation target on purpose. Its decision demonstrates that even eight years after the global financial crisis, central bankers are still willing to experiment with monetary policy tools as they struggle to escape from low inflation around the world . The move marks another effort by Haruhiko Kuroda, BoJ governor, to surprise market expectations by expanding his monetary policy toolkit to signal his determination that Japan escape its decades of on-and-off deflation . But the question for Mr Kuroda is whether three-and-a-half years of slow progress on prices have damaged the BoJ’s credibility too much for promises of higher inflation to be taken seriously by the public . “The price stability target of 2 per cent has not been achieved … [and] this is la...

The editorial board of Bloomberg View posted an op-ed, The Fed Should Be Clear and Raise Rates : Running the U.S. Federal Reserve has never been an easy job, and the degree of difficulty is only getting higher. Eight years after the crash, the economy is sending confusing signals, and the Fed’s policy makers aren’t sure what they mean . That’s awkward when the one thing investors want from this week’s interest-rate decision is clarity. Under these circumstances, the Fed is bound to disappoint. The best it can do is press cautiously ahead on normalizing monetary policy, explain what “normal” now means, and promise to keep an open mind as new information comes in. What this requires right now, it should also say, is a quarter-point rise in interest rates . The U.S. unemployment rate stands at 4.9 percent, which once would have been seen as full employment. The target for the federal funds rate is currently 0.25-0.50 percent, which once would have been seen as extraordinary m...

Jack Dolan of the LA Times reports, The Pension Gap : With the stroke of a pen, California Gov. Gray Davis signed legislation that gave prison guards, park rangers, Cal State professors and other state employees the kind of retirement security normally reserved for the wealthy. More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived. Proponents sold the measure in 1999 with the promise that it would impose no new costs on California taxpayers. The state employees’ pension fund, they said, would grow fast enough to pay the bill in full. They were off — by billions of dollars — and taxpayers will bear the consequences for decades to come. This year, state employee pensions will cost taxpayers $5.4 billion, according to the Department of Finance. That’s more than the stat...

Charles Stein of Bloomberg reports, Failing to Measure Up Is $422 Billion Stock Pickers' Crisis : You don’t have to look far to explain why investors are yanking money from mutual funds run by stock pickers. Only 9.5 percent of actively managed large-cap domestic equity funds beat the S&P 500 Index in the five years ended Aug. 31. That’s the worst five-year performance since 1999, according to data from Morningstar Inc . Investors are paying attention. About 3,000 actively run funds in that category saw redemptions of $422 billion over five years, while passive vehicles attracted $480 billion. Theories abound as to why the stock pickers have fared so poorly. Some blame the cheap money policies of central bankers for distorting fundamentals. Others note that markets seem to be driven by macro factors -- the direction of rates, the rise and fall of energy prices, worries about global growth -- rather than the earnings of individual companies . “Most active managers f...