European markets end higher
There was still a note of caution around, understandably given the ructions of recent weeks, but investors still managed to push most European markets higher. In the UK, the FTSE 100 was boosted by better than expected retail sales figures, but Italy underperformed amid worries about its forthcoming referendum on constitutional reform. The banking sector in Italy was under particular pressure again.
In the US, markets took Janet Yellen’s testimony in their stride, with the Fed chair hinting that a rate rise was likely next month. Disappointing results from Wal-Mart helped limit any gains, however. Jasper Lawler, market analyst at CMC Markets, said:
A rapid rise in retail sales in October helped UK stocks gain ground on Thursday despite poorly-received results from Royal Mail. There was a more mixed performance in European shares, with German and Italian indices weighed down by the banking sector.
US markets opened mostly higher, though disappointing Walmart results dragged the Dow Jones [down].
The final scores showed:
- The FTSE 100 finished up 44.99 points or 0.67% at 6794.71
- Germany’s Dax edged up 0.2% to 10,685.54
- France’s Cac climbed 0.59% to 4527.77
- Italy’s FTSE MIB fell 0.03% to 16,555.31
- Spain’s Ibex ended up 0.92% at 8718.0
- In Greece, the Athens market added 1.49% to 601.07
On Wall Street, the Dow Jones Industrial Average is currently up just 8 points or 0.04%.
On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.
If you want to listen to Yellen’s testimony again, it can be replayed here.
Summary: Yellen hints at rate rises, wants to serve full term
Janet Yellen, in both her prepared remarks and subsequent comments to Congress, strongly suggested an interest rate rise was on the cards in December, as most economists now expect.
She said the economy had strengthened since the Fed’s last meeting and inflation was moving up.
But she admitted the aftermath of the US election had caused uncertainty, and the Fed would have to take this into account.
And, following Donald Trump’s criticisms that the Fed was making decisons for political purposes, she defended the central bank’s independence.
Despite talk in the immediate wake of Trump’s victory that she might resign, she stated clearly she wanted to serve her full term until January 2018.
Updated
Much discussion of the lack of wage growth and how to tackle it, and how to help people who are not benefitting from the growth in the economy.
And some comments about how low interest rates mean companies are more likely to do share buybacks than invest. Yellen says its not clear to her why investment spending has been weak, but denies the Fed’s low interest rate policy is part of the problem.
And with profuse thanks for Yellen for turning up, the session ends.
Questioning turns to cybersecurity and what steps Fed has taken to address the risks.
Yellen says cybersecurity is one of most significant risks the country faces, and the Fed is working with others to make sure there is a system to deal with them. Have to make sure controls financial institutions have in place are sufficient. We are proposing highest standards firms [of systemic importance] should meet. And it is a broad threat and Fed cannot deal with it alone.
She says that in every country that has suffered hyperinflation, it was because central banks had to compromise their independence.
Yellen defends the independence of central banks (a hot topic at the moment).
She says Congress establishes the goals for monetary policy, but it is critical the central bank can make independent decisions to pursue those goals without interference while being accountable and transparent.
They need to be able to not think about the short term, and sometimes they need to do unpopular things.
#YELLEN says wants to serve full #Fed term. Despite criticism by Pres-elect @realDonaldTrump They also disagree on #DoddFrank fincl. regs.
— Ken Odeluga (@TheSquareMile) November 17, 2016
Yellen is asked about the Dodd Frank, the legislation brought in to regulate financial institutions after the financial crisis, which Donald Trump has talked about repealing.
Yellen says she would not want to turn back the clock, and would not want all the improvements under Dodd Frank eliminated.
More on the aftermath of the election.
Yellen says that markets are anticipating fiscal policy will be expansionary, and this could have inflationary consequences. But she adds that there is still much uncertainty about future policies.
She says, we will watch what decisions are made and factor them into our calculations.
Question: Does lack of informantion mean it would be better to delay any rate rise until January.
[I believe] uncertainty about these matters will last for some considerable time. We have said gradual increases in rates are likely, near term risks do seem reasonably balanced. The judgement the [Fed] committee reached in November is appropriate one.
Yellen intends to serve out her full term
Can you envisage any circumstances you would not serve out your full term?
Yellen: No I cannot...I fully intend to serve out my term [which ends in January 2018.
[As a reminder, Donald Trump had been critical of Yellen and there had been some talk she might resign if he won the election]
Updated
Now for questions.
Does the election result effect the Fed’s view on raising rates?
Yellen: My own judgement is looking at economic data thus far, the evidence since we met in November is consistent with the expectation of strengthening growth, inflation moving up.
[There will be] many economic policies which Congress and the administration will consider in the months to come. When there is greater clarity, the committee will have to factor [that into] their assessments , and perhaps adjust the outlook depending what happens.
Updated
Yellen has begun her testimony (which as a reminder is available here).
As the introductions begin at Congress ahead of Yellen’s testimony, analysts continue to suggest a rate rise in December is pretty much nailed on. Neil Wilson at ETX Capital said:
Roll on December. Aside from a slight rise in US Treasury yields we’ve seen little major effect on financial markets after Janet Yellen said interest rates could rise soon.
The fact is a December rate hike has already been priced in – markets think there is a roughly 90% chance the Fed will increase the target federal funds rate. It now looks almost impossible for the Fed not to raise rates next month – it’s painted itself in a corner and has to respond with a hike or all hell will break loose in the markets.
[Jobless numbers] only strengthens the case for the Fed to act. Rising bond yields since Donald Trump’s win further add to the argument for the central bank to raise rates.
US inflation rises and jobless claims fall
Ahead of Janet Yellen starting her testimony to Congress [full text here], there has been a spate of US data, none of which makes a rate rise in December less likely.
The consumer price index rose 0.4% month on month in October, and 1.6% year on year, both in line with expectations. Economist James Smith at ING Bank said:
US inflation is not a massive concern for the Federal Reserve Open Markets Committee . That’s the upshot of today’s CPI report, which showed that the headline continued to rise (to 1.6% YoY) and continues to converge on the core rate (now 2.1%) as the effect of earlier oil price weakness filters out. In fact, the transport component made the first positive contribution to the 12-month rate of inflation since 2014.
As this energy drag disappears, we expect the headline rate to hit the Fed’s 2% target in the second quarter of next year. If there is one criticism of the overall inflation picture, it is that price gains are not especially broad-based...
But that aside, inflation is certainly not a hindrance to a December hike, nor indeed should it be a massive drag on the Fed’s plans for 2017. We may get some further insight from Chair Yellen’s testimony this afternoon. A central part of the discussion both today and amongst Fed officials over coming months will instead revolve around the neutral rate. In her introductory remarks today, Yellen suggested that the Fed funds rate is “only somewhat” below the neutral rate and the “risk of falling behind the curve seems limited”. This indicates that the pace of hikes could continue to be slow next year, although this will of course depend on some of Trump’s fiscal plans. But until the details of these plans become clearer, expect Yellen and other Fed officials to steer away from commenting on this topic.
Meanwhile weekly jobless claims hit a 43 year low, down 19,000 to a seasonally adjusted 235,000. Analysts had expected a rise to 257,000.
On Wall Street, the Dow Jones Industrial Average has opened 13 points or 0.07% higher.
Updated
UBS: Wealthy investors more optimistic since Trump win
Donald Trump’s election victory has alarmed and appalled many of our readers. But a new survey has found that wealthy US investors are now MORE confidence about their prospects.
UBS Wealth Management Americas latest quarterly Investor Watch report found a jump in optimism among high net worth and ultrahigh net worth investors since last week’s election.
They say:
UBS surveyed 1,200 wealthy investors immediately before and after the election to determine changes in sentiment and mindset. Since the election, 48% of investors feel optimistic about the short-term economic outlook, up from 39% just 3 weeks earlier.
This rise is driven by a sharp increase in optimism among Trump supporters that outweighed a decline among Clinton supporters.
Why this optimism, given the concerns over Trump’s policies on (for example) trade?
Well, some investors believe Washington needs shaking up, and like Trump’s pledge to cut regulations. His promise to cut taxes must be a factor too.
But while Trump fans move their money into riskier assets, Clinton supporters are being much more conservative. Many fear the president-elect will pull America into recession....
The Economist’s Buttonwood column has swiftly commented on Ed Balls’ proposal to reform central bank independence.
It argues that some of the criticism heaped on central banks has been unfair:
A lot of the current criticism of central banks assumes that they had some hidden political agenda (to support the election of Hillary Clinton or to warn voters off Brexit) behind their policy shifts. That is nonsense, in my view. In a low growth, low inflation world.
Central banks have had little option but to keep policy loose; many of those that tried to tighten policy have been forced to retreat. and central banks tend to reflect the consensus view of economists which was that Brexit would be bad news (those who think the consensus view has been proved wrong might note that the government has yet even to start the exit process).
In short, central banks may have made mistakes but they are honest mistakes.
But Buttonwood isn’t convinced by the most radical part of the paper -- the suggestion that central banks and politicians should co-ordinate on fiscal and monetary policy in times of crisis.
On its own merits, this sounds entirely sensible. But if you think central banks are in the political firing line now, what would happen if they started commenting on fiscal policy, particularly close to an election? Imagine if Ms Yellen were to advise the Republicans against tax cuts for the rich?
Anyone with an interest in monetary policy should read this excellent paper. But many will find reasons to disagree with it.
Off you go then....
Central Bank Independence Revisited: after the fin crisis, what should a modern central bank look like? - https://t.co/Y5QuM9VTZ5 https://t.co/7iWqwVWUdw
— Ed Balls (@edballs) November 17, 2016
Janet Yellen’s prepared testimony hasn’t moved the markets; which makes sense, as most Wall Street economists already expect a rate hike in December.
U.S. futures are little changed after Yellen's comment https://t.co/OZ7Ca5YfIc pic.twitter.com/sXpiDccXwP
— Bloomberg (@business) November 17, 2016
US Fed's Yellen repeats that interest-rate hike could come 'relatively soon'. Fed Fund's indicating a 90% chance of a Dec rate hike.
— IGSquawk (@IGSquawk) November 17, 2016
Janet Yellen has resisted any temptation to comment about the US election in her testimony to Congress (boo hiss).
The closest she gets is a familiar warning about economic uncertainty:
Of course, the economic outlook is inherently uncertain, and, as always, the appropriate path for the federal funds rate will change in response to changes to the outlook and associated risks.
Janet Yellen will also tell Congress that America’s economy has made “further progress this year”.
She begins her testimony by pointing out that the unemployment rate is now just 4.9%, with around 180,000 new jobs created each month in 2016.
And she is hopeful that Americans could see decent pay rises soon:
Further employment gains may well help support labor force participation as well as wage gains; indeed, there are some signs that the pace of wage growth has stepped up recently.
Yellen also points out that America’s growth race picked up in the last three months:
After rising at an annual rate of just 1 percent in the first half of this year, inflation-adjusted gross domestic product is estimated to have increased nearly 3 percent in the third quarter. In part, the pickup reflected some rebuilding of inventories and a surge in soybean exports.
In addition, consumer spending has continued to post moderate gains, supported by solid growth in real disposable income, upbeat consumer confidence, low borrowing rates, and the ongoing effects of earlier increases in household wealth
Janet Yellen is pretty clear that the Fed is close to raising rates:
At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives.
BREAKING: Janet Yellen says Fed rate hike could come "relatively soon" https://t.co/vEHHqfgdB7 pic.twitter.com/QOah76QrXP
— Bloomberg (@business) November 17, 2016
Janet Yellen: Leaving rates unchanged for too long would be a mistake
Breaking: Federal Reserve chair Janet Yellen has warned that it would be a mistake to leave US interest rates unchanged for too long.
It’s a hint that borrowing costs could be raised soon, possibly at the Fed’s next meeting in December.
That’s the top line from Yellen’s prepared testimony, which she will deliver to Congress in two hours time.
Yellen is arguing that if the Fed waits too long, it might find itself having to hike rates more aggressively to calm an over-heating economy.
She says:
Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee’s longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.
The FOMC continues to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain maximum employment and price stability.
More to follow....
The Bank of England is actually closer to a model modern central bank than either the US Federal Reserve or the European Central Bank, according to today’s report anyway.
Here’s the scorecard:
The BoE scores highly thanks to its suite of ‘macro-prudential tools’ to manage the economy -- such as the ability to control how much housebuyers can borrow for a mortgage.
But the BoE loses marks because there’s no joint body overseeing its work. That’s why Balls, Howat and Stansbury are calling for a UK version of America’s Financial Stability Oversight Council (FSOC). They say:
The FSOC...provides a forum for different regulators to challenge the Fed’s views of risks to financial stability and, because it is chaired by the Treasury, it can confer important political legitimacy for contentious regulatory decisions.
Balls: How central banks and governments could do helicopter money
Today’s report argues that central banks and governments need to work more closely when interest rates have reached rock bottom (the zero lower bound).
That could includes showering the economy with ‘helicopter money’, if government spending cuts have created a low-inflation, low-growth quagmire.
Ed Balls, James Howat and Anna Stansbury argue that central banks are struggling to get inflation up to target because governments aren’t spending enough.
They say:
Many economists have argued that recent austerity has not improved fiscal positions much, and may even have worsened them.
Rather, there is reason to believe that fiscal policy is structurally prone to undermine monetary policy at the zero lower bound. Indeed, many governments also responded with austerity in the Depression, the last time that western economies fell into a liquidity trap.
Explanations for the popularity of austerity at the zero lower bound include that recessions are opportunities for those calling for a smaller state to trim public expenditure. They can blame the recession on lax fiscal policy during the boom years. Households, particularly those with the median voters, are sympathetic to the argument that the government must “tighten its belt” at the same time as they do.
So if austerity drags an economy into a liquidity trap, policymakers may be forced to consider unconventional methods, such as helicopter money -- under which a central bank creates new money to fund an expansionary fiscal policy.
This is a controversial issue in economics - and this paper explains how this could happen:
The first principle is that the central bank should shape the broad outlines of the coordination. Not only does the central bank have macro-economic expertise which is vital if the coordination is to work, its leadership of the process is crucial to avoiding fiscal dominance. The central bank should be in charge of both initiating and ending the monetary-fiscal coordination process. To minimise political pressures on the central bank, the coordination process also needs to be clearly defined at the outset. In the event of helicopter drops, for example, the central bank needs to outline triggers for stopping them, such as an inflation knockout. This will protect the operational independence of core monetary policy, thereby anchoring inflation expectations.
The second principle is that any coordination mechanism must maintain political control over fiscal policy. So although the central bank can propose the outlines of a coordination plan, the government can refuse to participate. What’s more, the coordinating mechanism must distinguish between the stance and the content of fiscal policy. So while the central bank might call for looser fiscal policy, it should not comment on the composition of this loosening. Admittedly, the content of fiscal policy affects its macro-economic impact. Nonetheless, given the political dangers of commenting on individual fiscal items, and the democratic argument for the government to retain discretion over different tax and spending components, any coordination mechanism should limit itself to the fiscal stance.
The third principle is that monetary-fiscal coordination should be strictly limited to the zero lower bound. Even if a coordination mechanism effectively protects central bank independence and preserves democratic control over fiscal policy, entering the realm of fiscal policy still presents considerable threats to central bank independence. The prospect of central bankers routinely commenting on fiscal policy may undermine political support for central bank independence or may open up the central bank to reciprocal criticism over monetary policy from the government. By limiting such coordination to only when it is most effective, these risks can be minimised.
Updated
So much for my prediction that Ed Balls wouldn’t be able to perform any dance moves on the radio....
Yes, this is a video of @edballs of @bbcstrictly fame teaching @bbcnickrobinson Gangnam style during the eight o'clock news #r4today pic.twitter.com/yptk5Qf1uj
— BBC Radio 4 Today (@BBCr4today) November 17, 2016
Ed Balls’ research on central banks is getting some attention this morning, thanks to the Strictly effect.
Political journalist Iain Martin reckons Balls made a good argument on the Today Programme this morning (highlights are here)
Another storming performance from @edballs - calls for more political accountability for BoE. Seven!!! Maybe even eight.
— Iain Martin (@iainmartin1) November 17, 2016
Macroeconomics lecturer David Chivers points out that Balls still supports central bank independence - but with more political oversight.
@DuncanWeldon @edballs The paper is interesting. The headlines, however, are misleading. They imply an attack on independence.
— David Chivers (@dave_chivers) November 17, 2016
Here’s more reaction from the public:
@BBCr4today @bbcnickrobinson @edballs We need to reduce power of @bankofengland & @hmtreasury - should be servants of Govt, not masters.
— Terry S (@Tysess) November 17, 2016
@guardiannews @edballs it's independence is the only reason why we can borrow so cheap twinkle toes.
— Dan Bevan (@Baballso) November 17, 2016
Bloomberg have also covered the Balls paper, and point out that other experts are calling for central bank reforms:
Former U.S. Treasury Secretary Larry Summers has said that central bank independence, conceived as a way to stop governments from stoking inflation with measures designed to gain electoral support, is an outdated concept.
Governments and monetary policy makers need to cooperate to ensure the maximum effectiveness of stimulus in a world where demand is chronically deficient, he said in a speech at the International Monetary Fund this month.
More here: Architect of Bank of England Independence Ed Balls Urges Rethink
Here’s my colleague, Angela Monaghan, on Ed Balls’ central banking paper:
The Bank of England has become too powerful in the aftermath of the financial crisis and must be reined in, according to the former shadow chancellor Ed Balls.
Balls, one of the masterminds behind the Bank’s independence in 1997, said the issue was “unfinished business” and called for closer ties between Threadneedle Street and government.
The former Labour MP and contestant on this year’s Strictly Come Dancing, said that while the Bank should retain operational independence – setting interest rates and targeting inflation – it should not have to shoulder the entire burden for maintaining Britain’s financial stability.
Balls told BBC Radio 4’s Today programme:
“I think the case for independent central banks is as strong as it’s ever been. At a time of economic uncertainty but also great political risk, we need the [US] Fed and the Bank of England to play these roles. But the reforms we’ve seen over the last few years have hugely concentrated power in central banks. I think it’s unfinished business...
Here’s her full story:
Ed Balls: Bank of England's independence should be reined in https://t.co/NHA65Eq3cg
— Guardian news (@guardiannews) November 17, 2016
Ed Balls is effectively criticising some of the reforms made by his old rival George Osborne.
In 1997, the new Labour government handed control of interest rates to the Bank of England, under a ‘tripartite’ system where financial stability was also handled by the Financial Services Authority and the Treasury.
That system was heavily criticised when the credit crunch struck, bringing down Northern Rock, as no-one seemed to be in charge.
So Osborne concentrated more power at the Bank of England when he became chancellor in 2010
Our politics editor, Heather Stewart explains all:
There's history here: when Labour made Bank independent it shared financial stability job with Treasury, FSA. (1/3) https://t.co/zMxytZ43xg
— Heather Stewart (@GuardianHeather) November 17, 2016
That system was deemed to have failed in the '08 crisis - no one knew who was "driving the bus" (2/3)
— Heather Stewart (@GuardianHeather) November 17, 2016
So Osborne reforms concentrated more power in hands of Bank, and #glitterballs, author of Labour's plans, thinks it's gone too far. (3/3)
— Heather Stewart (@GuardianHeather) November 17, 2016
Newsflash: UK retail sales jumped by 1.9% during October, the biggest monthly rise since July.
On an annual basis, consumers bought 7.4% more stuff than in October 2015, which is the biggest rise since April 2002.
The ONS says colder weather helped clothes sales, and Halloween larks may also have boosted supermarkets. Hot take: the Brexit vote isn’t stopping Britain hitting the shops....
Updated
European credit strategist Tomas Hirst argues that governments have caused the furore over central bank independence, by failing to use their tax and spending powers better:
Easier way of saying this is that fiscal powers need to stop passing the buck to CBs. Independence debate is really about fiscal failure. https://t.co/afZ2Z3uqdo
— Tomas Hirst (@tomashirstecon) November 17, 2016
Top central bankers would agree. They often warn that monetary policy can’t create structural reforms or improve productivity - but it does give politicians a window of opportunity to act.
However... those decisions can be tough, and unpopular. So loose monetary policy can also dampen the pressure to act (as we’ve seen in the eurozone, where big decisions are only taken when there’s an actual crisis)
Ed Balls is also arguing that central banks should welcome more political accountability, as it would protect them in the next financial crisis.
The former shadow chancellor told the Today programme that:
If in the end when things start to go wrong, everything is concentrated in the Bank of England only, that is politically quite dangerous for the Bank.
So, in order to protect independence, the Bank needs more political support and accountability.
On Tuesday, BoE governor Mark Carney argued that some politicians are conducting a “massive blame deflection game”, by saying central banks are the sole cause of inequality and low interest rates.
Balls thinks Carney has a point, saying:
It’s very worrying seeing Mark Carney being attacked.
Balls on Today: The key quotes
Former shadow chancellor Ed Balls has told the Today Programme that central bank independence is ‘unfinished’ business -- and that no country has the perfect central bank set-up yet.
He pointed out that central bankers have played a vital role since the financial crisis struck; but now have an awful lot of power:
Over the last five years, we have hugely relied on central banks on both sides of the Atlantic to sustain growth, to keep our economies growing, and yet at the same time they’re under big attack. In Congress, the Fed being heavily criticised. We’ve seen not just MPs attacking Mark Carney and the Bank of England, but even our Prime Minister a few weeks ago slapping Mark Carney down.
I think the case for independent central banks is as strong as it’s ever been. At a time of economic uncertainty but also great political risk, we need the Fed and the Bank of England to play these roles and we don’t want them to be politically criticised, but, the reforms we’ve seen over the last few years have hugely concentrated power in central banks.
That’s why Balls believes the Bank of England needs more accountability to parliament, especially as its monetary policy has such a big impact on the distribution of wealth
It’s good to have a financial policy committee making decisions about our whole financial system, but frankly, there’s not sufficient accountability, there’s not a clear target, they’re making [decisions] that are quite distributionally politically sensitive.
If things go wrong, then politicians would have to step in and say there’s a gap in the system. What we need is a systemic risk body chaired by the chancellor, which is overseeing the whole system and setting a mandate for the Bank of England and also there if a crisis starts to build, that’s a gap we need to fill.
Balls is adamant that central banks have been doing a good job, at a very difficult time, without enough support from the government:
The low interest rate policy over the last few years is the only thing that has stopped our economy slipping back into depression. They’ve been trying to meet a target for low inflation, they’ve been undershooting because of the deflation forces in the economy. They’ve been doing their job. We actually say, what we need to have is a better dialogue between central banks and governments. If government had done a bit more work to support the economy through infrastructure spending, that would have made it easier for the Bank of England.
Updated
Why Ed Balls' central bank paper matters
Ed Balls’s paper on central bank independence comes at a good time, and not just because he’s still hanging on in Strictly.
Disenchantment with central bankers has been growing steadily; as opponents question whether keeping interest rates close to zero and pumping up asset prices was actually working.
In Britain, the Bank of England has been under steady fire from pro-Leave campaigners because of its warnings against Brexit.
In America, the Federal Reserve has been scorched by Donald Trump. He vowed to replace Fed chair Janet Yellen when her first term ends in 2018.
And the European Central Bank has been heavily criticised for its role in eurozone austerity, and for its huge bond-buying programme.
Chris Giles of the Financial Times points out that criticism is coming in from across the political spectrum:
Concerns about central bank policies and over-reach span the political horizon. They range from president-elect Donald Trump’s accusations that the Fed kept short-term interest rates low at the behest of the Obama administration, Brexiters’ complaints that the BoE’s interventions in the debate over leaving the EU were “beneath the dignity” of the venerable institution and German politicians’ rage at the European Central Bank’s actions.
Most complaints in the US have come from the political right. But in Britain there have been as many from the left. In setting up a review of the BoE, the leadership of the Labour party has questioned whether the central bank should be forced to fund infrastructure projects.
Admit it, #Strictly fans, this is the @edballs story you *really* want to read #SCD https://t.co/PudLcVTPsJ via @FT
— Chris Giles (@ChrisGiles_) November 17, 2016
Ed Balls is now presenting his paper on the Today programme.
He’s arguing that central bank independence must be maintained, but with additional political accountability.
"I think the case for independent central banks is as strong as it has ever been," says @edballs after publication of his paper #r4today
— BBC Radio 4 Today (@BBCr4today) November 17, 2016
He also defends the Bank of England over its current very loose monetary policy.
Record low interest rates and quantitative easing (buying government bonds with new money) helped to ward off a new great depression, he agues:
. @edballs says Theresa May "slapped down" Governor of the Bank of England. Argues banks shd be independent but need more accountability
— Kamal Ahmed (@bbckamal) November 17, 2016
"Low interest rate policy is only thing that has stopped economy moving into depression." Don't then attack Bank for dong that @edballs
— Kamal Ahmed (@bbckamal) November 17, 2016
Ed Balls: Central bank independence should be reformed
After months of delighting, or horrifying, the nation with his dancing skills, Ed Balls has sashayed back to the world of economics by arguing that the independence of the Bank of England should be curbed.
The former shadow chancellor has co-authored a new academic paper which examines what a ‘model central bank’ would look like.
It conclude that reforms need to be made, to address the growing public unhappiness about the “unelected, technocratic institutions’ which now play such a massive role in the global economy.
And that should includes more political oversight of the Bank of England, to allow politicians and other experts to challenge its decisions where appropriate, creating more accountability.
The old consensus that central banks should get as much independence has possible is now inadequate, says the paper - which Balls co-wrote with James Howat and Anna Stansbury of Harvard University.
They write:
Absolutist interpretations of complete central bank independence may both undermine the pursuit of new central bank objectives and fray the political support that currently exists for central bank autonomy in their core monetary policy function.
Indeed, popular discontent towards central banks is growing in the US, UK and the euro-zone. We need a more nuanced approach to central bank independence in this brave new world.
Balls was one of the key players behind giving the Bank of England control of monetary policy (back in the 90s, before he swapped Westminster for the dance floor).
And this paper argues that new curbs should be brought in, to fight ‘groupthink’ at the Bank of England.
The @edballs paper on central bank independence is very good - https://t.co/Cm9JazQmUl
— Duncan Weldon (@DuncanWeldon) November 17, 2016
It says:
After the centralisation of prudential regulation – both of the micro and macro variety – and systemic risk monitoring inside the Bank of England, there is a danger that the UK money-credit constitution is too concentrated in the central bank, leading to the possibility of groupthink, a lack of oversight and ultimately risks to central bank independence.
The solution?
A body, chaired by the Chancellor of the Exchequer, which provides a forum for different regulators to share information, opinions and challenge the central bank perspective.
However, the paper still argues firmly that central bank independence is worth fighting for, rather then handing the levers of monetary policy back to the elected politicians.
It concludes:
The recent US election, and the resulting Republican control of Congress as well as the White House, are widely expected to lead to further criticism of the power and independence of the Federal Reserve. Meanwhile, in recent weeks we have seen increasingly open political attacks on Bank of England Governor Mark Carney from Brexit supporters.
But we are clear that this is no time to throw the baby out with the bathwater....
We reiterate that the case for operational independence in both monetary and macro-prudential policy is strong: to retreat on this now would be a serious mistake
You can see whole report here.
Dance star branches out with surprising views on central bank independence. https://t.co/sVVKXUSFW8
— Patrick Wintour (@patrickwintour) November 17, 2016
Balls is discussing the paper this morning, so we’ll have more details soon.
He’s on Radio 4 right now (so no chance to show off those silky moves, alas).
Updated
The agenda: UK retail sales and Janet Yellen's testimony
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we’ll be watching the UK retail sales figures, at 9.30am, to see if British consumers are still shrugging off the Brexit vote.
The financial markets look calmer today, after recent wild gyrations following Donald Trump’s election victory. Bond yields have settled down, and the equities markets are expected to open little changed.
Our European opening calls:$FTSE 6774 +0.36%
— IGSquawk (@IGSquawk) November 17, 2016
$DAX 10682 +0.17%
$CAC 4507 +0.13%$IBEX 8652 +0.16%$MIB 16596 +0.22%
Things may liven up this afternoon, though, when Federal Reserve chair Janet Yellen testifies to Congress (from 3pm GMT or 10am EDT)
Yellen is sure to field questions about Trump’s proposal to splurge $1trn on a new infrastructure programme, and also about her own future; as the president-elect has been so critical of her in recent months.
Yellen’s testimony should be released at 1pm GMT (8am EDT).
And on the corporate front, Royal Mail, Majestic Wine and retailer Ted Baker are reporting results.
Updated
