The end of summer, for economists at least, is marked by the Jackson Hole symposium. This annual central banker summit, set in the picturesque Wyoming mountain resort, is generally of interest only to faceless financial investors and policy wonks. This weekend’s gabfest, though, is likely to attract more attention.
One reason is that this could be the last hurrah for Janet Yellen. The diminutive Federal Reserve boss, the only woman ever to hold this vital post, could soon be replaced. Her first term expires in February – and President Trump could decide not to reappoint her.
What should we make of this latest rise in UK inflation? Is it because of Brexit? And are interest rates now set to rise for the first time in almost a decade?
This was a sharp inflation increase. In February, the consumer price index was 2.3pc higher than in the same month in 2016, compared to a 1.8pc annual increase the month before. Less than six months ago, in October 2016, annual CPI inflation was remarkably subdued, at 0.9pc. Now UK inflation has shot above the Bank of England’s 2pc target for the first time since 2013.
“It’s our expectation that rate increases this year will be appropriate,” said Janet Yellen last week. The Federal Reserve boss was signaling that US interest rates will keep going up.
America’s central bank has increased rates only twice in the past 10 years. The last time, though, was as recently as December 2016. If the Fed does raise rates this year too, that would be hugely significant – suggesting the global interest rate cycle has well and truly turned. It would also pose a danger that financial markets could plunge.
“I am not going to offer the incoming president advice about how to conduct himself”. So said Federal Reserve boss Janet Yellen last week, as the US central bank raised interest rates for only the second time in a decade.
The rate increase, in and of itself, wasn’t surprising. For months, various members of the Fed’s policy-making board have been publicly stating that higher rates were in the works. Still, despite the “quarter point” hike from 0.5pc to 0.75pc being “baked into” asset prices ahead of Wednesday’s announcement, the market reaction has been quite volatile.
“While we will always put America’s interests first, we will get on with all other nations that want to get on with us. We’ll have great relationships, we will seek common ground not hostility, partnership not conflict”.
So Donald Trump during the small hours of Wednesday morning, as part of his acceptance speech. These emollient words, and the praise he heaped on Hillary Clinton after months of campaign-trail bile, changed the mood on global markets.
UK GDP grew by 0.4pc during the first three months of 2016, we learnt last week, down from 0.6pc the quarter before. “The threat of leaving the European Union is now weighing on our economy,” claimed Chancellor George Osborne.
The Bank of England is worried about “a fall in sterling due to fears of Brexit”, we’re repeatedly told, the latest Threadneedle Street intervention also warning of “a lower path for growth” if British voters have the audacity to leave the EU.
And if only “uncertainty” hadn’t been “heightened by the UK’s referendum on EU membership”, Janet Yellen opined last Wednesday, the mighty Federal Reserve might now be able to raise interest rates, helping the US central bank steer global markets away from dependence on emergency measures and back towards normality.
So, the Federal Reserve finally did it. I half-suspected Janet Yellen would find yet another excuse not to raise interest rates last week. But the Chair of the world’s most important central bank made her move, with the Fed’s Open Market Committee coming to a unanimous decision.
For the first time in almost a decade, US policymakers put up the “Fed Funds rate”. Having been steadily cut from late 2007, as the ghastly sub-prime crisis loomed into view, then dramatically slashed to historic lows after the Lehman Brothers collapse a year later, America’s benchmark price of money has sat at 0-0.25pc for an incredible seven years.