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Federal Reserve transcripts: Inflation targets and 'sex made boring' Add to ...

These are stories Report on Business is following Thursday, Jan. 12, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Sprucing up communications Transcripts of Federal Reserve meetings in 2006 shed a lot of light on a lot of things, from warnings of the housing downturn to the type of inflation target used by the Bank of Canada.

Inflation targets are still on the Fed's agenda, but the transcripts show the idea was raised, and generally supported, in the year that Ben Bernanke became governor of the central bank. The members of the Federal Open Market Committee, the policy-setting panel, decided a gradual approach would be best.

Canada's central bank targets an overall annual inflation rate of 2 per cent, and the FOMC members at the time discussed the general approach of broadcasting a long-term objective.

Overall communications was also on the agenda, which is notable given the Fed's new focus on transparency and telling markets what they need need to know.

"I have another proposal, which is completely independent of our decision to go toward an explicit inflation goal; it is that markets would tremendously benefit from more information about our forecasts, which are now twice a year, and to have that information four times a year," said Frederic Mishkin, a Fed governor at the time.

"... This could be done in an evolutionary fashion. We have a reporting procedure on monetary policy, which we are mandated to carry out twice a year. By saying that we’re willing to do it four times a year, we are actually saying that, in the spirit of co-operating with the Congress, we are trying to be even more helpful. So I think it would fit in very naturally. What it would require, of course, is a little more work on the part of all of us because we’d have to do it four times a year rather than twice a year."

(Mr. Miskin then went into a rant of sorts about the quality of documents: "Another key issue is that we need to greatly improve the quality of the written documents that go with this process. The current Monetary Policy Report is really terrible. It’s dull; it’s sex made boring. I don’t want to criticize too much, but it is ... If it were a textbook, and I can tell you I know a lot about this, you wouldn’t sell one copy."

Overall, the documents show that policy makers were worried about the housing market, but in no way saw the meltdown, and subsequent crisis, coming. The Globe and Mail's Boyd Erman examines that issue in Streetwise.

Euro zone stabilizing? Some better news - for a change - from the embattled euro zone today.

First, as he held interest rates steady, as expected, the new chief of the European Central Bank also said he sees some signs of stability in the 17-member monetary union. Second, debt auctions in Spain and Italy were deemed a big success.

"Ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of a stabilization in activity at low levels," Mario Draghi said.

The ECB held its benchmark rate steady at 1 per cent. The Bank of England, meanwhile, held its key rate at 0.5 per cent.

Retail sales weak U.S. retailers appear to have had a weak holidy season, according to December data released today.

Retail sales in the United States rose by just 0.1 per cent in December, marking the tiniest gain since a drop during the recession of 2008.

And, noted Paul Dales, senior U.S. economist at Capital Economics in Toronto, sales actually dipped 0.1 per cent when gas, autos and building materials are excluding.

"This is in stark contrast to the overage 0.5 per cent month-over-month rise in this measure of underlying sales seen in the five months to October," Mr. Dales said.

"In other words, households have started to pare back their spending, most probably because their real incomes have continued to fall."

China inflation eases China is winning its war against inflation, good news for markets hoping to see further monetary easing.

Annual inflation dipped to 4.1 per cent in December from November's 4.2 per cent, according to official data released today. Food prices, which have been a sore spot, still rose, but inflation eased in other sectors. Excluding food, inflation is now at its lowest since late 2010.

The speed of the decline could pick up even more.

"Seasonal factors linked to Chinese New Year slowed inflation's decline in December," said Mark Williams, chief Asia economist at Capital Economics in London, noting that food prices normally rise ahead of the festival.

"The payback will come once the festival has passed when the headline rate is likely to register another significant drop," Mr. Williams said. "... The seasonal effect will continue to distort the data for January and February. It will be some time before we have a clear view of the economy. But there are plenty of reasons to think inflation will continue to fall."

Economists expect the People's Bank of China could soon cut reserve requirements for the country's major banks again, easing policy as inflation tames.

RBS cuts deep Royal Bank of Scotland is slashing thousands of additional jobs amid an overhaul of its operations.

Some 3,500 jobs will be cut in its investment bankings unit, the government-controlled bank announced today..

"For our strategy to be effective, it must adjust to fresh challenges," chief executive officer Stephen Hester said in a statement.

"And it is clear that, particularly in the wholesale banking arena, significant new pressures have emerged. The changes we are announcing today seek to ensure that RBS is at the front of the pack in pursuing a strategy that reflects the environment we expect to operate in."

Lululemon v. RIM One of my colleagues noticed yesterday that Lululemon Athletica Inc. is now worth more than Research In Motion Ltd., underscoring the star power of the former and the struggles of the latter.

Based on its number of shares and today's price, Lululemon was worth about $9-billion, according to Bloomberg data. The market capitalization of RIM , in turn was about $8.8-billion. (The spread was wider yesterday.)

The value of the two companies actually crossed before, for about a day in late December, but then crossed again. Earlier this week, however, Lululemon shares shot up, putting the popular yoga wear retailer atop the BlackBerry maker.

The two companies operate in different fields, of course, and can't really be compared. But they are similar in one way: They both depend on devoted customers.

It's interesting to note, too, how analysts view the two. Macquarie's Liz Dunn said this week that Lululemon's success is riding on "the maniacal product focus and the fact that the company is creating a market that didn't really exist before." That's what people used to say about RIM, whose earnings and eroding market share in the key U.S. market have disappointed investors.

It's also a big week for both of the Canadian companies.

On Tuesday, Lululemon shares surged after it boosted its outlook for both revenue and profit in the fourth quarter, projecting earnings per share of 47 cents (U.S.) to 49 cents, compared to an earlier forecast of 40 cents to 42 cents. Revenue is projected to be between $358-million and $363-million, up from an earlier call of between $327-million and $332-million. Clearly, it had a good holiday season.

In the case of RIM, the BlackBerry maker won kudos as it showed off the upgrade to its PlayBook tablet at the Consumer Electronics Show in Las Vegas, The Globe and Mail's Omar El Akkad and Iain Marlow report. It won rave reviews in key places, though analysts questioned whether RIM may be too late to upgrade in a market dominated by the iPad from Apple Inc. .

Whither takeover rules? It has been more than a year since top politicians in Ottawa said that they would clarify the Investment Canada Act, in the wake of the government’s surprising decision to reject BHP Billiton’s proposed takeover of Potash Corp., Tara Perkins writes in Streetwise today.

But that hasn’t happened yet, and the Conservatives will regret it if a hostile bidder descends on Research In Motion Ltd.

Business Ticker

In Economy Lab The recession didn't hit the Quebec economy as hard as it did the rest of Canada, Stephen Gordon writes, but something has happened since then.

In International Business The great defender of China’s ruling Communist Party, the People’s Daily newspaper, has announced plans to take its Web version public on the Shanghai Stock Exchange. Surely the move has Chairman Mao rolling in his mausoleum, Carolynne Wheeler writes from Beijing.

In Globe Careers Author Michael Ellsberg provides career tips gleaned from four billionaires who learned from life experience, not lecture halls.

From today's Report on Business

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