If you have stocks or bonds then you should be acutely interested in the FED right now

Time for an exit strategy?

Last Wednesday’s prepared testimony by Fed Chairman Ben Bernanke to the Joint Economic Committee of Congress seemed to start with an effort to silence recent chatter about the Fed’s so-called "exit strategy", i.e. the "tapering" off of its quantitative easing program.

"A premature tightening of monetary policy could lead interest rates to rise temporarily, but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further". Obviously. Pretty much an undeniable truism.

But then, in response to a question from the Committee, he stunned the markets with what seemed like a complete volte face, when he commented that the Fed could cut the pace of asset purchases,"in the next few meetings", sending 10 –Yr US Treasury yields through the 2 per cent barrier for the first time since they fell through the floor on 15th March on news of the first, ill-conceived version of the Cypriot bail-in.

Then, later that evening, the minutes of the most recent meeting of the Federal Reserve’s monetary policy committee, the FOMC, informed us that, "…. a number of participants favored tapering, (of Quantitative Easing), as early as June if incoming information suggested sufficiently strong and sustained growth at the time", although "views differed on the likelihood of that outcome".

It’s certainly the case then that the FOMC as a body has tilted towards removal of the "punch bowl’", as evidence that the "party" is hotting up becomes more widespread. Sure,  the big-guns, Bernanke, New York Fed President Dudley and Vice-Chairperson Yellen are inveterate doves, but there is a vociferous contingent of more-hawkish voters, (and non-voters), and when the Committee undergoes its annual rotation of regional Fed President voters next January, the balance will become distinctly more "hair-shirt"; if you assign a rating to each voter using a scale with 0 for dovish, to 5 for hawkish, and aggregate the changes, then I’d say it’s 10 "out"and 16 "in". Markets will begin to discount this soon.

This may all seem pretty arcane stuff and you may think that unless you’re a bond trader you needn’t really pay too much attention to such detail. ABSOLUTELY NOT; if you have investments of any sort in stocks, bonds, (of course), or commodities, then you should be acutely interested, as there is nothing which has contributed to rallies since March 2009 so much as the Federal Reserve’s largesse.

So what is the Fed up to? My view would be that they know QE has played a highly significant role in powering markets higher, they fear bubbles, they fear the reaction when they start to tighten, but they know it’s much like a visit to the dentist-the longer you put it off, the more painful the consequences.

Above all perhaps, they fear a repeat of 1994, when unexpected tightening caused a bond market rout.

So they’re trying to let us know as subtly as possible that they’re thinking about making a dentist’s appointment, and that means the rallies probably only have a month or two to run.

Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

Getty
Show Hide image

There's nothing Luddite about banning zero-hours contracts

The TUC general secretary responds to the Taylor Review. 

Unions have been criticised over the past week for our lukewarm response to the Taylor Review. According to the report’s author we were wrong to expect “quick fixes”, when “gradual change” is the order of the day. “Why aren’t you celebrating the new ‘flexibility’ the gig economy has unleashed?” others have complained.

Our response to these arguments is clear. Unions are not Luddites, and we recognise that the world of work is changing. But to understand these changes, we need to recognise that we’ve seen shifts in the balance of power in the workplace that go well beyond the replacement of a paper schedule with an app.

Years of attacks on trade unions have reduced workers’ bargaining power. This is key to understanding today’s world of work. Economic theory says that the near full employment rates should enable workers to ask for higher pay – but we’re still in the middle of the longest pay squeeze for 150 years.

And while fears of mass unemployment didn’t materialise after the economic crisis, we saw working people increasingly forced to accept jobs with less security, be it zero-hours contracts, agency work, or low-paid self-employment.

The key test for us is not whether new laws respond to new technology. It’s whether they harness it to make the world of work better, and give working people the confidence they need to negotiate better rights.

Don’t get me wrong. Matthew Taylor’s review is not without merit. We support his call for the abolishment of the Swedish Derogation – a loophole that has allowed employers to get away with paying agency workers less, even when they are doing the same job as their permanent colleagues.

Guaranteeing all workers the right to sick pay would make a real difference, as would asking employers to pay a higher rate for non-contracted hours. Payment for when shifts are cancelled at the last minute, as is now increasingly the case in the United States, was a key ask in our submission to the review.

But where the report falls short is not taking power seriously. 

The proposed new "dependent contractor status" carries real risks of downgrading people’s ability to receive a fair day’s pay for a fair day’s work. Here new technology isn’t creating new risks – it’s exacerbating old ones that we have fought to eradicate.

It’s no surprise that we are nervous about the return of "piece rates" or payment for tasks completed, rather than hours worked. Our experience of these has been in sectors like contract cleaning and hotels, where they’re used to set unreasonable targets, and drive down pay. Forgive us for being sceptical about Uber’s record of following the letter of the law.

Taylor’s proposals on zero-hours contracts also miss the point. Those on zero hours contracts – working in low paid sectors like hospitality, caring, and retail - are dependent on their boss for the hours they need to pay their bills. A "right to request" guaranteed hours from an exploitative boss is no right at all for many workers. Those in insecure jobs are in constant fear of having their hours cut if they speak up at work. Will the "right to request" really change this?

Tilting the balance of power back towards workers is what the trade union movement exists for. But it’s also vital to delivering the better productivity and growth Britain so sorely needs.

There is plenty of evidence from across the UK and the wider world that workplaces with good terms and conditions, pay and worker voice are more productive. That’s why the OECD (hardly a left-wing mouth piece) has called for a new debate about how collective bargaining can deliver more equality, more inclusion and better jobs all round.

We know as a union movement that we have to up our game. And part of that thinking must include how trade unions can take advantage of new technologies to organise workers.

We are ready for this challenge. Our role isn’t to stop changes in technology. It’s to make sure technology is used to make working people’s lives better, and to make sure any gains are fairly shared.

Frances O'Grady is the General Secretary of the TUC.