Will the next Fed meeting’s decision really make a difference?

So now we're all on tenterhooks until 18th Sept.

So now we're all on tenterhooks until 18th Sept., when we hear if the Federal Reserve has decided to reduce, (‘taper’), its monthly bond purchases. Traders, Treasurers, pension pot holders, emerging market Finance Ministers-this is what we’ve been waiting for since Bernanke first warned us in May/June it may be coming.
However, this certainly will be no surprise-this is not 1994 with its surprise Fed hike and bond market rout. The Fed has done a fantastic job of delivering an unpopular message-the start of the end of cheap money-in a manner designed to cause the least possible market volatility, and maybe the still buoyant level of the S&P 500 is eloquent testimony to their success. The reasons for the S&P's resilience are important.
Developed market countries' stock markets have retained their poise because US bonds yields have been going up for a good reason-and that is the return of growth and optimism, not just in the US, but also in Europe and China. The rise in 10-yr US Treasury yields from 1.4% to 3.0% is best described as a healthy normalisation, as it has been driven by a reduction in the all-pervading fear which has gripped the market since the Lehman bankruptcy, first, and then the emergence of the Eurozone crisis, once the depth of Greece's fiscal mess became clear.
This basic human response to seek safe-haven has played an equally important part as that of QE in keeping yields subdued.
Only in the last six months have we started to return to the 'normal' modus operandum, in which long term yields are the sum of compounded short rates and the risk premium, the latter being investors' judgement of future liquidity, credit, and fiscal and monetary policy uncertainty over the life of the bond.
Paradoxically, desperate safe-haven flight far outweighed those factors for US Treasuries, and collapsed the risk premium. We have now returned to a normal state of affairs, with the Eurozone crisis also contained, as we all belatedly came to appreciate that political will would easily overcome any economic maladies.
This has lead me to the scary conclusion that while the FOMC's pronouncements on 18th may prompt a temporary rally in US Treasuries, (especially as there is a 50 per cent probability that they will lower the employment threshold for rate rises from 6.5 per cent to 6 per cent), but that will be a great opportunity to sell bonds.
This is a bond bear market-and companies like Verizon are very wise indeed to lock in cheap borrowing. Growth is on the rise worldwide, (even rather anaemically in Europe), and I'm afraid the Fed won't have any room for hesitation driven by concerns over the effect of tapering on emerging markets, as was made abundantly clear by a couple of senior Fed officials at the Jackson Hole conference. No wonder; the Fed-haters in the Senate would have a field day if the FOMC seemed to be managing other countries' economies for them. (Of course, those Senators give no thought for the potential negative feedback effects that an EM crisis could have on the US).
Let's say the Fed doesn’t actually taper QE at all, that will send stock markets soaring and give business confidence another boost-quickly pushing yields higher anyway.

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.

Photo: Martin Whitfield
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Labour MP for East Lothian Martin Whitfield: "I started an argument and ended up winning an election"

The former primary school teacher still misses home. 

Two months ago, Martin Whitfield was a primary school teacher in Prestonpans, a small town along the coast from Edinburgh. Then he got into an argument. It was a Saturday morning shortly after the snap election had been called, and he and other members of the local Labour party began discussing a rumour that the candidate would be an outsider.

“I started an argument that this was ridiculous, we couldn’t have a candidate helicoptered in,” he recalls. He pointed out that one of the main issues with the Scottish National Party incumbent, the economist and journalist George Kerevan, was that he was seen as an outsider.

“I kept arguing for an hour and a half and people started gently moving away,” he jokes. “About two days later I was still going on, and I thought enough’s enough.” 

He called Iain Gray, the Scottish Labour veteran, who interrupted him. “He said, 'Right Martin, are you going to put up or shut up?’ So I filled in the forms.

"Then I had to have a very interesting conversation with my wife.”

One successful election campaign later, he is sitting in the airy, glass-roofed atrium of Westminster’s Portcullis House. Whitfield has silver hair, glasses, and wears a Labour-red tie with his shirt. He looks every bit the approachable primary school teacher, and sometimes he forgets he isn’t anymore. 

I ask how the school reacted to his election bid, and he begins “I have”, and then corrects himself: “There is a primary four class I had the pleasure to teach.” The children wanted to know everything from where parliament was, to his views on education and independence. He took unpaid leave to campaign. 

“Actually not teaching the children was the hardest thing,” he recalls. “During the campaign I kept bumping into them when I was door-knocking.”

Whitfield was born in Newcastle, in 1965, to Labour-supporting parents. “My entire youth was spent with people who were socialists.”

His father was involved in the Theatre Workshop, founded by the left-wing director Joan Littlewood. “We were part of a community which supported each other and found value in that support in art and in theatre,” he says. “That is hugely important to me.” 

He trained as a lawyer, but grew disillusioned with the profession and retrained as a teacher instead. He and his wife eventually settled in Prestonpans, where they started a family and he “fought like mad” to work at the local school. She works as the marketing manager for the local theatre.

He believes he won his seat – one of the first to be touted as a possible Labour win – thanks to a combination of his local profile, the party’s position on independence and its manifesto, which “played brilliantly everywhere we discussed it”. 

It offered hope, he says: “As far as my doorstep discussion in East Lothian went, some people were for and against Jeremy Corbyn, some people were for and against Kezia Dugdale, but I didn’t find anyone who was against the manifesto.”

Whitfield’s new job will mean long commutes on the East Coast line, but he considers representing the constituency a “massive, massive honour”. When I ask him about East Lothian, he can’t stop talking.

“MPs do tend to say ‘my constituency’s a microcosm’, but it really is Scotland in miniature. We have a fishing industry, crabs and lobsters, the agricultural areas – the agricultural soil is second to none.” The area was also historically home to heavy industry. 

After his first week in Westminster, Whitfield caught the train back to Scotland. “That bit when I got back into East Lothian was lovely moment,” he says. “I was home.”

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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