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
Show Hide image

Brexiteers want national sovereignty and tighter borders – but they can't have both

The role of the European Court of Justice is a major sticking point in talks.

Why doesn't Theresa May's counter-offer on the rights of European citizens living and working in Britain pass muster among the EU27? It all comes down to one of the biggest sticking points in the Brexit talks: the role of the European Court of Justice.

The European Commission, under direction from the leaders of member states, wants the rights of the three million living here and of the British diaspora in the EU guaranteed by the European Court. Why? Because that way, the status of EU citizens here or that of British nationals in the EU aren't subject to the whims of a simple majority vote in the legislature.

This is where Liam Fox, as crassly he might have put it, has a point about the difference between the UK and the EU27, being that the UK does not "need to bury" its 20th century history. We're one of the few countries in the EU where political elites get away with saying, "Well, what's the worst that could happen?" when it comes to checks on legislative power. For the leaders of member states, a guarantee not backed up by the European Court of Justice is no guarantee at all.

That comes down to the biggest sticking point of the Brexit talks: rules. In terms of the deal that most British voters, Leave or Remain, want – a non-disruptive exit that allows the British government to set immigration policy – UK politicians can get that, provided they concede on money and rules, ie we continue to follow the directions of the European Court while having no power to set them. Britain could even seek its own trade deals and have that arrangement.

But the problem is that deal runs up against the motivations of the Brexit elite, who are in the main unfussed about migration but are concerned about sovereignty – and remaining subject to the rule of the ECJ without being able to set its parameters is, it goes without saying, a significant loss of sovereignty. 

Can a fudge be found? That the Article 50 process goes so heavily in favour of the EU27 and against the leaving member means that the appetite on the EuCo side for a fudge is limited. 

But there is hope, as David Davis has conceded that there will have to be an international guarantor, as of course there will have to be. If you trade across borders, you need a cross-border referee. If a plane goes up in one country and lands in another, then it is, by necessity, regulated across borders. (That arrangement has also been mooted by Sigmar Gabriel, foreign minister in Angela Merkel's government. But that Gabriel's centre-left party looks likely to be expelled from coalition after the next election means that his support isn't as valuable as many Brexiteers seem to think.)

On the Conservative side, a new EU-UK international body would satisfy the words of May's ECJ red line. On the EU27 side, that the body would, inevitably, take its lead from the treaties of the EU sans Britain and the ECJ would mean that in spirit, Britain would be subject to the ECJ by another name.

But it comes back to the Brexit dilemma. You can satisfy the voters' demand for non-disruptive control of British borders. You can satisfy political demand for sovereignty. But you can't have both. May – and whoever replaces her – will face the same question: who do you disappoint?

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

0800 7318496