A big week for money

Breakthroughs worldwide.

Last week might go down as one of the most important ever for monetary policy. No paradigms have shifted, and no great new knowledge has presented itself to the world, but elites across the globe have shown an unexpected ability to actually listen.

On Wednesday, the US Federal Reserve announced that it was adopt what is being called the "Evans Rule", after the Chicago Fed President who proposed it. The American central bank has always had a dual mandate – it is charged with looking after inflation and unemployment, in contrast to the Bank of England's "price stability" mandate – but this new rule makes that mandate far more explicit.

The reserve's open market committee describes the rule:

The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

In other words, the interest rate is guaranteed to stay at its historic low of 0-0.25 per cent until unemployment is below 6.5 per cent or inflation is above 2.5 per cent. It replaces an earlier guarantee that rates would be kept low until 2015, although the reserve maintains that it expects the guidance to be roughly similar in practice (that is, they think it likely that one of those targets will be hit in that year).

The plan behind this sort of guidance is based on the fact that growth – the very thing which the Fed ought to be trying to encourage – frequently leads to inflation. For example, as the economy recovers, young unemployed people are going to be getting jobs and moving out of their parent's homes, some into new houses, putting pressure on the market. At the same time, they may start driving into work, increasing demand for fuel. That will, all else being equal, increase prices for those goods, and so increase inflation; but in this sort of situation, that's definitely a price worth paying.

Without the Evans rule, or something similar to it, businesses would expect that growth-led spike in inflation to be followed by a tightening of monetary policy. As a result, they may be unwilling or unable to borrow at the low rates we have now, for fear that they will rise shortly after – creating a vicious cycle. Fear of tightening policy prevents the growth which would lead to that policy getting tightened.

Under the new rules, Americans can be assured that, unless inflation exceeds its target by quite some margin, the Fed will continue its pro-growth policy even while growth is actually happening.

A similar change was suggested by future Bank of England governor Mark Carney in a speech on Tuesday night. Talking about the role guidance plays in central bank governance, Carney had good things to say about nominal GDP (NGDP) targeting. This involves the bank targeting, not a flat level of inflation, but a level of nominal GDP. The effect is that in periods of low real growth, the bank is prepared to tolerate much higher inflation than it is in periods of high growth – leading to similar outcomes to those described above.

In addition, since an NGDP level, rather than growth rate, is targeted, even higher inflation is tolerated in periods following a recession, as Carney explains (via FT Alphaville):

adopting a nominal GDP (NGDP)-level target could in many respects be more powerful than employing thresholds under flexible inflation targeting. This is because doing so would add “history dependence” to monetary policy. Under NGDP targeting, bygones are not bygones and the central bank is compelled to make up for past misses on the path of nominal GDP (chart 4)

Carney's speech was far less concrete than the Fed's actual adoption of unconventional policy guidance – and he also faces higher hurdles bringing such a change in. The Bank of England is statutorily required to target "price stability"; most commentators expect NGDP-targeting to therefore require at least a bill through parliament, although a minority argue that it could be an acceptable interpretation on Carney's part of that stability mandate.

And finally, just yesterday, Shinzo Abe won the Japanese election on a platform of forcing the Bank of Japan to do more monetary easing. He said before the election that his number one priority was to defeat deflation, with the *FT* reporting that:

He dismissed as “meaningless” recent moves by the BoJ, saying an October ¥11tn increase in the central bank’s asset purchasing programme was too limited to change market sentiment and that the central bank and government should agree on an inflation target of perhaps 2 or 3 per cent.

“The time has come for a general mobilisation of all policy measures to get rid of deflation,” said Mr Abe, a former prime minister who resigned in 2007 after a setback-strewn year in office.

The BoJ should embrace “unlimited easing” and also consider cutting the 0.1 per cent overnight interest paid on banks’ deposits at the BoJ to zero or a negative rate, in order to “strengthen pressure to lend”, he said in a speech in Tokyo.

Questions have been raised as to whether this is a genuine opinion of Mr Abe's about monetary policy, or merely an attempt to secure seignorage-driven income to fund higher government spending; but either way, the markets appear to trust the outcome, with the Yen plummeting and Nikkei surging

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Meet Anne Marie Waters - the Ukip politician too extreme for Nigel Farage

In January 2016, Waters launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). 

There are few people in British political life who can be attacked from the left by Nigel Farage. Yet that is where Anne Marie Waters has found herself. And by the end of September she could well be the new leader of Ukip, a party almost synonymous with its beer-swilling, chain-smoking former leader.

Waters’s political journey is a curious one. She started out on the political left, but like Oswald Mosley before her, has since veered dramatically to the right. That, however, is where the similarities end. Waters is Irish, agnostic, a lesbian and a self-proclaimed feminist.

But it is her politics – rather than who she is – that have caused a stir among Ukip’s old guard. Former leader Paul Nuttall has said that her views make him “uncomfortable” while Farage has claimed Ukip is “finished” if, under her leadership, it becomes an anti-Islam party.

In her rhetoric, Waters echoes groups such as the English Defence League (EDL) and Britain First. She has called Islam “evil” and her leadership manifesto claims that the religion has turned Britain into a “fearful and censorious society”. Waters wants the banning of the burqa, the closure of all sharia councils and a temporary freeze on all immigration.

She started life in Dublin before moving to Germany in her teens to work as an au pair. Waters also lived in the Netherlands before returning to Britain to study journalism at Nottingham Trent University, graduating in 2003. She subsequently gained a second degree in law. It was then, she says, that she first learnt about Islam, which she claims treats women “like absolute dirt”. Now 39, Waters is a full-time campaigner who lives in Essex with her two dogs and her partner who is an accountant.

Waters’s first spell of serious activism was with the campaign group One Law for All, a secularist organisation fronted by the Iranian feminist and human rights activist Maryam Namazie. Waters resigned in November 2013 after four years with the organisation. According to Namazie, Waters left due to political disagreements over whether the group should collaborate with members of far-right groups.

In April 2014, Waters founded Sharia Watch UK and, in January 2016, she launched Pegida UK with former EDL frontman Steven Yaxley-Lennon (aka Tommy Robinson). The group was established as a British chapter of the German-based organisation and was set up to counter what it called the “Islamisation of our countries”. By the summer of 2016, it had petered out.

Waters twice stood unsuccessfully to become a Labour parliamentary candidate. Today, she says she could not back Labour due to its “betrayal of women” and “betrayal of the country” over Islam. After joining Ukip in 2014, she first ran for political office in the Lambeth council election, where she finished in ninth place. At the 2015 general election, Waters stood as the party’s candidate in Lewisham East, finishing third with 9.1 per cent of the vote. She was chosen to stand again in the 2016 London Assembly elections but was deselected after her role in Pegida UK became public. Waters was also prevented from standing in Lewisham East at the 2017 general election after Ukip’s then-leader Nuttall publicly intervened.

The current favourite of the 11 candidates standing to succeed Nuttall is deputy leader Peter Whittle, with Waters in second. Some had hoped the party’s top brass would ban her from standing but last week its national executive approved her campaign.

Due to an expected low turnout, the leadership contest is unpredictable. Last November, Nuttall was elected with just 9,622 votes. More than 1,000 new members reportedly joined Ukip in a two-week period earlier this year, prompting fears of far-right entryism.

Mike Hookem MEP has resigned as Ukip’s deputy whip over Waters’ candidacy, saying he would not “turn a blind eye” to extremism. By contrast, chief whip, MEP Stuart Agnew, is a supporter and has likened her to Joan of Arc. Waters is also working closely on her campaign with Jack Buckby, a former BNP activist and one of the few candidates to run against Labour in the by-election for Jo Cox’s former seat of Batley and Spen. Robinson is another backer.

Peculiarly for someone running to be the leader of a party, Waters does not appear to relish public attention. “I’m not a limelight person,” she recently told the Times. “I don’t like being phoned all the time.”

The journalist Jamie Bartlett, who was invited to the initial launch of Pegida UK in Luton in 2015, said of Waters: “She failed to remember the date of the demo. Her head lolled, her words were slurred, and she appeared to almost fall asleep while Tommy [Robinson] was speaking. After 10 minutes it all ground to an uneasy halt.”

In an age when authenticity is everything, it would be a mistake to underestimate yet another unconventional politician. But perhaps British Muslims shouldn’t panic about Anne Marie Waters just yet.

James Bloodworth is editor of Left Foot Forward

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear