The Fed's decision not to taper was a protest

But do they protest too much?

The Fed’s decision to surprise the market by NOT tapering last Wednesday was clearly intended as a protest at the market’s interest rate expectations and maybe also told us that now Larry Summers has been forced shamefully out of the contest, the front-runner to replace Mr Bernanke, San Francisco Fed President Janet Yellen, is already easing herself quietly into the Chairman’s seat.

The FOMC’s shock tactic certainly had the desired effect, sending Treasury yields tumbling and forcing estimates for the timing of the first Fed Funds hike further into the distance.

My guess, however, would be that this is will be brief victory for the Fed, and maybe ultimately a Pyrrhic one, endangering its credibility; the reason being that the Fed’s actions and statements are littered with inconsistencies.

The Fed’s own prognoses for the economy, the Summary of Economic Projections (SEP) would have us believe that by the end of 2016 the US will be enjoying an employment rate between 5.4 per cent to 5.9 per cent, very close to the FOMC’s own estimate for the long-run "full employment" rate which the economy can support without inflation getting out of hand, of 5.2 per cent to 5.8 per cent.  However, extraordinarily, the SEP also tells us that inflation will be at or near the 2 per cent target, but that the nominal Fed Funds rate will still only be at 2 per cent (meaning the real rate will be near zero).

This set of outcomes would represent an unheard of state of affairs; for instance, the standard piece of theory used by economists to predict the  appropriate level for interest rates, given prevailing unemployment and inflation rates, the so-called Taylor rule, would suggest a Fed Funds rate close to the long-run neutral level, which the FOMC itself estimates as 4 per cent!

When asked about these inconsistencies at the post-meeting press conference Chairman Bernanke said that “there may be possibly several reasons” for their end-2016 Fed Funds rate expectation being still far below the long-run neutral level but the “primary reason for that low value is that we expect that a number of factors, including the slow recovery of the housing sector, continued fiscal drag, perhaps continued effects from the financial crisis, may still prove to be headwinds to the recovery”.

Really? Eight years after the Financial crisis peaked? Why exactly? Show a little more faith in the US economy’s "animal spirits" please, Mr Bernanke but, hang on, your growth estimates for the next few years, with real GDP growth forecasts of 3.0 per cent in 2014, 3.25 per cent in 2015, and 2.9 per cent in 2016, are really quite upbeat? They don’t suggest that the crisis will still by then be inflicting the sort of structural damage that would call for the bizarre combination of economic variables and interest rates which you are trying to convince us will pertain?

My feeling would be that the Fed, like the BOE, will have to raise rates far earlier and faster than it would have us expect. Not tapering would have delivered an effective slap on the wrist to the market, the combination of the SEP and the forward interest rate guidance together meant "they did protest too much".

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.

Getty.
Show Hide image

Andy Burnham and Sadiq Khan are both slippery self-mythologisers – so why do we rate one more than the other?

Their obsessions with their childhoods have both become punchlines; but one of these jokes, it feels to me, is told with a lot more affection than the other.

Andy Burnham is a man whose policies and opinions seem to owe more to political expediency than they do to belief. He bangs on to the point of tedium about his own class, background and interests. As a result he’s widely seen as an unprincipled flip-flopper.

Sadiq Khan is a man whose policies and opinions seem to owe more to political expediency than they do to belief. He bangs on to the point of tedium about his own class, background and interests. As a result he’s the hugely popular mayor of London, the voice of those who’d be proud to think of themselves as the metropolitan liberal elite, and is even talked of as a possible future leader of the Labour party.

Oh, and also they were both born in 1970. So that’s a thing they have in common, too.

Why it is this approach to politics should have worked so much better for the mayor of London than the would-be mayor of Manchester is something I’ve been trying to work out for a while. There are definite parallels between Burnham’s attempts to present himself as a normal northern bloke who likes normal things like football, and Sadiq’s endless reminders that he’s a sarf London geezer whose dad drove a bus. They’ve both become punchlines; but one of these jokes, it feels to me, is told with a lot more affection than the other.

And yes, Burnham apparent tendency to switch sides, on everything from NHS privatisation to the 2015 welfare vote to the leadership of Jeremy Corbyn, has given him a reputation for slipperiness. But Sadiq’s core campaign pledge was to freeze London transport fares; everyone said it was nonsense, and true to form it was, and you’d be hard pressed to find an observer who thought this an atypical lapse on the mayor’s part. (Khan, too, has switched sides on the matter of Jeremy Corbyn.)

 And yet, he seems to get away with this, in a way that Burnham doesn’t. His low-level duplicity is factored in, and it’s hard to judge him for it because, well, it’s just what he’s like, isn’t it? For a long time, the Tory leadership’s line on London’s last mayor was “Boris is Boris”, meaning, look, we don’t trust him either, but what you gonna do? Well: Sadiq is Sadiq.

Even the names we refer to them by suggest that one of these two guys is viewed very differently from the other. I’ve instinctively slipped into referring to the mayor of London by his first name: he’s always Sadiq, not Khan, just as his predecessors were Boris and Ken. But, despite Eoin Clarke’s brief attempt to promote his 2015 leadership campaign with a twitter feed called “Labour Andy”, Burnham is still Burnham: formal, not familiar. 

I’ve a few theories to explain all this, though I’ve no idea which is correct. For a while I’ve assumed it’s about sincerity. When Sadiq Khan mentions his dad’s bus for the 257th time in a day, he does it with a wink to the audience, making a crack about the fact he won’t stop going on about it. That way, the message gets through to the punters at home who are only half listening, but the bored lobby hacks who’ve heard this routine two dozen times before feel they’re in the joke.

Burnham, it seems to me, lacks this lightness of touch: when he won’t stop banging on about the fact he grew up in the north, it feels uncomfortably like he means it. And to take yourself seriously in politics is sometimes to invite others to make jokes at your expense.

Then again, perhaps the problem is that Burnham isn’t quite sincere enough. Sadiq Khan genuinely is the son of a bus-driving immigrant: he may keep going on about it, but it is at least true. Burnham’s “just a northern lad” narrative is true, too, but excludes some crucial facts: that he went to Cambridge, and was working in Parliament aged 24. Perhaps that shouldn’t change how we interpret his story; but I fear, nonetheless, it does.

Maybe that’s not it, though: maybe I’m just another London media snob. Because Burnham did grow up at the disadvantaged end of the country, a region where, for too many people, chasing opportunities means leaving. The idea London is a city where the son of a bus driver can become mayor flatters our metropolitan self-image; the idea that a northerner who wants to build a career in politics has to head south at the earliest opportunity does the opposite. 

So if we roll our eyes when Burnham talks about the north, perhaps that reflects badly on us, not him: the opposite of northern chippiness is southern snobbery.

There’s one last possibility for why we may rate Sadiq Khan more highly than Andy Burnham: Sadiq Khan won. We can titter a little at the jokes and the fibs but he is, nonetheless, mayor of London. Andy Burnham is just the bloke who lost two Labour leadership campaigns.

At least – for now. In six weeks time, he’s highly likely to the first mayor of Greater Manchester. Slipperiness is not the worst quality in a mayor; and so much of the job will be about banging the drum for the city, and the region, that Burnham’s tendency to wear his northernness on his sleeve will be a positive boon.

Sadiq Khan’s stature has grown because the fact he became London’s mayor seems to say something, about the kind of city London is and the kind we want it to be. Perhaps, after May, Andy Burnham can do the same for the north – and the north can do the same for Andy Burnham.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.