The Fed was just trying to keep a low profile

Last Wednesday’s FOMC statement was a classic of the genre, but it won't stop the New Year’s renewed debate over government funding and the debt ceiling from hovering into view.

If nothing else, I think we’d all agree that drafting the post-FOMC statement must surely be a huge lexicographical challenge, with tens of thousands of teenage scribblers, traders, investors and politicians crawling over every word to try and discover significance where, in many cases, none may exist. In this sense, last Wednesday’s statement was a little classic of the genre.

Some were surprised to see the pace of expansion of economic activity still described as "moderate" rather than "modest". True, the housing sector had now "slowed somewhat", whereas last time it had "been strengthening", there was even debate over whether the inclusion of the word "some" in the FOMC’s assessment of the labour market as having "shown some further improvement" was a downgrade.

The truth is, this was just a holding statement, and we should watch their lips - any change in policy will be data dependent. They dropped the previous comment which suggested that tighter financial conditions could damage the recovery-hardly surprising since 10-year yields had virtually doubled from the Spring's low of 1.6 per cent to 3.0 per cent just before the September meeting, but they have since dropped to 2.5 per cent and the stock market has resumed its climb.

It’s also possible that the FOMC was keen to sound tough in advance of the Senate confirmation hearings on Janet Yellen’s candidacy as Fed Chairman. Not all FOMC members may like her dovish stance, but she’s one of theirs, and they certainly don’t want to encourage the sort of uncomfortable scrutiny of the Fed advocated by Senator Rand Paul and his father. Hence their assiduous and conspicuous failure to suggest tapering would be further delayed.

The week of 4th November will be key, recent data having been somewhat contradictory, with weak consumer confidence, but a rather robust Manufacturing ISM Survey; the former may portend a weak non-Manufacturing ISM report - much the larger part of the economy, and then of course, the most important data of the week, October's employment report, due on the 8th. We may see some asymmetry in market reaction here again, with a strong report being dismissed as distorted by the shutdown, whereas weak data would support a further delay in tapering.

It is also certainly the case that by the time of the next FOMC meeting in December the Fed will have little, if any, further clarity on the economy’s health and the New Year’s renewed debate over government funding and the debt ceiling will be hovering into view.

Traders react to the Federal Open Market Committee report, 18 September 2013. 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: Getty Images
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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.