At the US Federal Reserve, when is a threshold not a threshold? When it's an embarrassment

The Federal Open Market Committee is keen to hold fund rates in spite of falling unemployment. It's the first act of a newer, stricter committee.

Let’s take the Fed first. When is a threshold not a threshold? Answer: when it becomes an embarrassment.

With the unemployment rate plummeting towards the 6.5 per cent "threshold" touted by the Fed as the point at which it would consider rate increases, we were told in the statement released after their December meeting that the FOMC "now anticipates that the funds rate will be held unchanged until 'well past' the time that the unemployment rate has fallen below its 6.5 per cent threshold".

This was a meeting at which a majority in favour of just lowering the threshold to 6.0 per cent, or even 5.5 per cent, obviously couldn’t be found. Thank goodness. This is certainly a testament to the sagacity of the committee, as moving the goal posts so soon after they were inserted into the ground would have been seriously detrimental to the Fed’s credibility. What’s to say the threshold wouldn’t suddenly become 5 per cent, or even be abandoned completely when it was subsequently convenient?

We should bear in mind that in many ways this was the outgoing, dovish Fed’s final act, with Helicopter Ben at the helm (or the cyclic, I guess). The FOMC composition became distinctly more hawkish at the January meeting. No surprise then that the January meeting saw another $10bn reduction in QE and no lowering of thresholds.

My guess would be that by the March meeting several clouds that have been obscuring the health of the US economy, and hammering risk assets, will have blown over. I don’t feel that by any means all emerging markets will have escaped the cosh, but I do feel that we will have avoided widespread contagion, a la the 1997/8 Asian/Russian Crises, and that the pressure will be seen as contained and upon the most vulnerable - Argentina, Brazil, Turkey, South Africa, say, whereas key Asian nations will be relatively calm - India, China, Indonesia, Korea and Taiwan.

I do feel that headline US unemployment will be lower by then and that there will be a burgeoning realisation that we shouldn’t devalue that because of low participation rates. Widespread academic research has highlighted that a large proportion of the fall in participation rates has been caused by demographics - to somewhat over-simplify, baby boomer retirees - and is not going to race back up cyclically. Finally, US economic data will finally be free of both government shutdown and weather distortions, and looking very healthy.

Here in the UK, the BOE faces a very similar dilemma and Wednesday’s release of the Bank's Quarterly Inflation Report (QIR) will surely unveil tweeks to forward guidance. As in the US, unemployment is crashing, and last week’s January UK Services PMI Reading, although only a tad lower at 58.3, from 58.8 in Dec, boasted sub-components that still made excellent reading, with the key employment index moving higher, along with the outstanding business index which, at 55.3, stands at its high since 1997. At this rate Q1 growth is looking like 1.0 per cent qoq.

I do not expect the QIR to announce a reduction in the unemployment threshold to 6.5 per cent, say, but I do expect to see a nod to other metrics, such as wage and productivity growth. There must also be a 25 per cent chance that they take a leaf out of the Fed's book and introduce a version of the Summary of Economic Projections, with a record of individual MPC members' views on the future path of the Bank's Base Rate. In short, RIP forward guidance, long live old-style insight into the MPC's thinking and reaction function.

Janet Yellen, Chair of the Board of Governors of the Federal Reserve System. 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.

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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

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