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

Let's face it: supporting Spurs is basically a form of charity

Now, for my biggest donation yet . . .

I gazed in awe at the new stadium, the future home of Spurs, wondering where my treasures will go. It is going to be one of the architectural wonders of the modern world (football stadia division), yet at the same time it seems ancient, archaic, a Roman ruin, very much like an amphitheatre I once saw in Croatia. It’s at the stage in a new construction when you can see all the bones and none of the flesh, with huge tiers soaring up into the sky. You can’t tell if it’s going or coming, a past perfect ruin or a perfect future model.

It has been so annoying at White Hart Lane this past year or so, having to walk round walkways and under awnings and dodge fences and hoardings, losing all sense of direction. Millions of pounds were being poured into what appeared to be a hole in the ground. The new stadium will replace part of one end of the present one, which was built in 1898. It has been hard not to be unaware of what’s going on, continually asking ourselves, as we take our seats: did the earth move for you?

Now, at long last, you can see what will be there, when it emerges from the scaffolding in another year. Awesome, of course. And, har, har, it will hold more people than Arsenal’s new home by 1,000 (61,000, as opposed to the puny Emirates, with only 60,000). At each home game, I am thinking about the future, wondering how my treasures will fare: will they be happy there?

No, I don’t mean Harry Kane, Danny Rose and Kyle Walker – local as well as national treasures. Not many Prem teams these days can boast quite as many English persons in their ranks. I mean my treasures, stuff wot I have been collecting these past 50 years.

About ten years ago, I went to a shareholders’ meeting at White Hart Lane when the embryonic plans for the new stadium were being announced. I stood up when questions were called for and asked the chairman, Daniel Levy, about having a museum in the new stadium. I told him that Man United had made £1m the previous year from their museum. Surely Spurs should make room for one in the brave new mega-stadium – to show off our long and proud history, delight the fans and all those interested in football history and make a few bob.

He mumbled something – fluent enough, as he did go to Cambridge – but gave nothing away, like the PM caught at Prime Minister’s Questions with an unexpected question.

But now it is going to happen. The people who are designing the museum are coming from Manchester to look at my treasures. They asked for a list but I said, “No chance.” I must have 2,000 items of Spurs memorabilia. I could be dead by the time I finish listing them. They’ll have to see them, in the flesh, and then they’ll be free to take away whatever they might consider worth having in the new museum.

I’m awfully kind that way, partly because I have always looked on supporting Spurs as a form of charity. You don’t expect any reward. Nor could you expect a great deal of pleasure, these past few decades, and certainly not the other day at Liverpool when they were shite. But you do want to help them, poor things.

I have been downsizing since my wife died, and since we sold our Loweswater house, and I’m now clearing out some of my treasures. I’ve donated a very rare Wordsworth book to Dove Cottage, five letters from Beatrix Potter to the Armitt Library in Ambleside, and handwritten Beatles lyrics to the British Library. If Beckham and I don’t get a knighthood in the next honours list, I will be spitting.

My Spurs stuff includes programmes going back to 1910, plus recent stuff like the Opus book, that monster publication, about the size of a black cab. Limited editions cost £8,000 a copy in 2007. I got mine free, as I did the introduction and loaned them photographs. I will be glad to get rid of it. It’s blocking the light in my room.

Perhaps, depending on what they want, and they might take nothing, I will ask for a small pourboire in return. Two free tickets in the new stadium. For life. Or longer . . . 

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 16 February 2017 issue of the New Statesman, The New Times