Judgement day: the Fed chairman decides fate of US stimulus programme

An anxious waiting game.

The world stock markets are shaky as investors are cautious amid growing concerns that the US Federal Reserve may halt its favourite economic stimulus programme earlier than expected.

The US stocks opened lower this week, after reaching all-time highs last week. Now, financial media and analysts are putting the weak market down to a lack of economic security, after Fed officials suggested that the Federal Reserve might taper its bond buying programs.

Since September, the central bank has printed $85bn a month to purchase Treasuries and mortgage-backed securities, a policy known as quantitative easing. The programme’s life is contingent on the strength of the economy – the Fed is committed to ending it as soon as it detects substantial improvement in the outlook for US employment.

That said, it is no surprise that all eyes are on Fed Chairman Ben Bernanke, who is scheduled to give his testimony on the US economic outlook before Congress on Wednesday. The speech might give some hints about the Fed's exit strategy.

When the Fed’s 19-member policy committee last met three weeks ago, officials emphasised that they could either increase or decrease the scale of their monthly bond purchases, depending on projections for the economy.

In the weeks since, positive news on the US economy has outweighed the negative, thanks to a stronger jobs market, and growth in retail sales.

So it is no surprise that investors across the globe paid attention when Chicago Fed President Charles Evans, a voting member of the Federal Open Market Committee, the policy-setting arm of the Fed, last week expressed optimism over the US economy, raising concerns that he would support tapering the quantitative easing policy earlier than expected.

The US central bank's massive asset purchases are considered the main driver of US economic growth, so with the latest news that the stimulus programme might be halted or at best, that bond buying will decrease, investors are becoming wary. As the US dollar retreated against major currencies Monday, there’s no doubt that today’s testimony will have a serious impact on the American economy as well as global finances.

Consequently, today will be an anxious waiting game.

Fed Chairman Ben Bernanke. Photograph: Getty Images

Sandra Kilhof Nielsen is a freelance writer and former reporter for Retail Banker International, Cards International & Electronic Payments International.

Photo: Getty
Show Hide image

The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.