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April 11, 2024 - 3:30pm
Megan Greene, one of the more hawkish members of the Bank of England’s Monetary Policy Committee (MPC), has told the Financial Times that interest rate cuts in Britain “should still be a way off”. Her statements come as American bond markets sell off aggressively and traders retract previous bets that the BoE would lower rates twice this year.
What is happening? The short answer is that US inflation came in hot this week — and since the BoE does not really operate an independent monetary policy but instead follows the US Federal Reserve, the economists at Threadneedle Street are having second thoughts. US inflation registered at 3.5%, up significantly from February’s figure of 3.2%. Since December the Federal Reserve has been signalling that it expects inflation to fall so that it can lower interest rates in the run-up to this year’s election.
Those of us watching the data have been warning that there is little evidence inflation is coming down, and that there is a serious risk of higher energy prices. This has led many to speculate that the Fed has been politicised, committing to lower interest rates because it wants to help Joe Biden defeat Donald Trump this autumn.
This interpretation was lent even more credence by the response of the President to the inflation news: Biden said yesterday that the March inflation report might delay an interest rate cut by “a month or so”. Is it the job of the American president to predict interest rates? Of course not: the Federal Reserve is supposed to be an independent institution and its policy is supposed to be data-driven. Yet its track record since Biden entered the White House has been abysmal, and there is more evidence mounting that the institution has become politicised.
To make the situation even worse, there are now accusations of plagiarism circulating online against Lisa Cook, an economist nominated by Biden to the Board of Governors in May 2022. Cook, whose work appears to mainly focus on social justice issues, is now in the crosshairs. But even if the accusations do not materialise into something more serious, it is reasonable to ask why an economist focused on racial issues is qualified to set monetary policy. Is the Biden administration stacking the central bank’s deck with political allies to get the interest rate policies he approves of?
These questions are not just relevant to the United States. The BoE largely sets its interest rate policies with reference to the Fed’s policy because if it cuts rates too quickly and American rates are significantly higher than the British equivalent, the value of sterling might decline as capital flows west across the Atlantic. As a result, the BoE is largely stuck playing Follow the Leader.
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SubscribeWhy are 5% interest rates a disaster? There were 593 houses repossessed in Q4 2023, the lowest number since 2010 (if you exclude the COVID period where repossessions were stopped). It seems to me that there are fewer over-extended mortgage holders than there are people who would like to be able to get a good return from a savings account.
1.5m homeowners come off low fixed rates in 2024 MM. Even then repossessions take time, but how people feel and the stress related regarding their finances and future as a result still important.
And then there’s those trying to get on the ladder.
It may not make much difference to Voting intentions in UK as looks like enough already concluded I’ve had enough of this lot.
American non-partisan institutions have become politicized? I’m shocked I tell ya. Shocked.
China does it better, treating money supply as a public utility and keeping strategic control of investment away from those who happen to hold assets at any moment.