The Fed has a difficult task ahead

Careless talk costs money.

One clings to the hope that Chairman Ben Bernanke and his colleagues at the US Federal Reserve are some of the brightest economists in the world today and hence they know what they are doing because, be in no doubt, they have embarked on an ambitious journey, during which they intend to simultaneously burst bubbles, avoid a bond market rout, and maybe even at the same time encourage banks to use their cash to lend to people and businesses by making government bonds less attractive.

To achieve all of the above at the same time without causing excessive market volatility will indeed be an enormously difficult task. As Andrew Haldane, the Bank of England’s Executive Director for Financial Stability, recently observed rather pointedly, "we have intentionally blown the biggest government bond bubble in history".

Surely recent "Fedspeak", including Bernanke’s bombshell comment that Quantitative Easing, (QE), may be tapered "within the next few meetings" can’t just have been "careless talk". Given the quite extreme effect on US Treasury bond yields, (the 10-year yield climbed by 0.60 per cent in only five weeks), one can be quite certain that by now the Fed would have embarked on a coordinated program intended to correct market perceptions, if the Fed was unhappy with same. This has not happened, but there is just a chance that they take the opportunity next Wednesday at the regular meeting of their monetary policy committee, the FOMC, to do just this. However, I don’t expect this to be the case.

I feel that a large contingent at the Fed has become concerned that bubbles of the kind that brought the financial system to the brink of collapse in 2008 were re-forming and they needed to tackle this sooner rather than later.

The multiple and diverse incidental consequences of their change in rhetoric are plain to see. Credit spreads have widened, emerging markets and currencies have tumbled, and fear rather than greed has the upper hand. Most frustratingly for the Fed’s counterparts at the Bank of Japan, the Yen has strengthened, as its safe-haven status has trumped even their massive quantitative easing and this in turn has caused the Nikkei stock index to collapse.

I’m sure the Fed is watching these developments very closely, but I don’t believe they will be easily deviated from their path, as they fear delay will have far more serious consequences.

Ben Bernanke. 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.

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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.