19 August 2024: “Hawkish Haskell’s” replacement named

One of the more hawkish independent Bank of England’s Monetary Policy Committee members leaves at the end of the month. Jonathan Haskel took over the mantle of arch-hawk Michael Sanders when he joined the Committee in 2018.

Since the pressure has mounted for interest rates to be cut, Haskel has consistently sided with his independent colleague Catherine Mann in showing concerns that inflation is still a concern.

Only in March did he stop voting for rates to be hiked, while the majority of the Committee voted for no change.

Only following that meeting and ever since has he voted for no change even when the majority voted for a cut at its meeting last month.

Alan Taylor, an academic lecturer at Columbia University in New York, will replace him. Little is known about Taylor’s attitude to monetary policy as a means of controlling inflation, but given that the vote at the last meeting of the MPC was 5-4 in favour of a cut, his vote will be crucial at the committee’s next meeting on September 19th.

In recent years, Taylor has acted in an advisory capacity at financial companies including Pimco and Morgan Stanley.

The UK economy grew by 0.6% between April and June 2024, a slight slowdown compared with the first quarter of the year, according to official data released on Thursday.

In the period from January to March, the UK’s GDP rose by 0.7%, ending the recession in the second half of last year.

Inflation “ticked up” to 2.2% in July, having settled at the Bank’s target of 2% in the previous two months. Services inflation remains a concern, although wages in the sector have moderated recently.

The decision concerning a rate cut at the next meeting will warrant even greater discussion, considering the rise in inflation, which was the first this year.

The market expects the decision to be for rates to remain unchanged, given the concern that Andrew Bailey and his colleagues have for slowing the pace of deflation.

At July’s meeting Huw Pill, the Bank’s Chief Economist “broke ranks” and voted for no change, although unless there is further public comment before the September meeting traders will be “in the dark.”

The pound rallied to its higher level for a month as speculation over the divergence between U.S. and UK monetary policy intensified.

It reached a high of 1.2946 and closed at 1.2943.

It is probably the weakest argument that a candidate can make for election to say that they represent continuity. Most voters are looking for candidates to bring a fresh perspective to their campaign, even if overall they hold the same political credentials as their predecessors.

There has been an overriding feeling that the current Vice President, Kamala Harris, has had Donald Trump “on the ropes” since Joe Biden dropped out of the race and nominated her to succeed him.

Harris represents an entirely different challenge to Trump’s ambition to return to the White House, being younger than Biden, sharper than the incumbent and a better debater.

Trump has adopted a low-key persona since Harris became the preferred candidate of the past two Democrat Presidents, Bill Clinton, and Barack Obama, although Obama’s endorsement was less than fulsome.

While his public appearances have been equally rumbustious as ever, even after an attempted assassination, his more serious one-on-one interviews have shown a distinct lack of policy initiatives, which has led to public concern that he is “running scared.”

The latest opinion polls show the two candidates as being neck and neck, as Harris has been shown as more trusted on the economy. Trump is still considered to be better when it comes to foreign policy as the former President taps into the “America First” rhetoric.

The level of public spending is unlikely to change should Harris win in November, but that is a far greater concern to Wall Street than it is to the man in the street.

The Fed’s annual Jackson Hole Symposium hosted by Fed Chair Jerome Powell takes place this week, with the “great and the good” of global finance and monetary policy likely to see and be seen.

It is unlikely that Powell, in his opening address, will allude to anything but the Fed’s current approach to monetary policy, but it is often on the fringes of the meeting that the best sound bites are to be found.

Mary Daly, the President of the San Francisco Fed, spoke last week of her belief that inflation has been tamed, and it’s now time to consider a gradual programme of rate cuts.

The FOMC meets in the same week as the MPC, with the ECB meeting the following week. Current predictions are for the Fed to be the only one that announces a cut in rates. This will see interest rates converge again and be a bearish signal for the dollar, which has lost ground over the past six weeks or so.

Last week, the Greenback fell to a low of 102.27 and closed at 102.40. It is now close to its medium-term support level but lacks the momentum to go significantly lower.

It is a scenario that few would have expected, but it is becoming clearer that Germany is dragging the entire Eurozone economy into a recession.

The Bundesbank and the German public by both voice and deed are continuing to back the hawkish stance of the ECB in not being in a hurry to loosen monetary policy.

Joachim Nagel, the President of the Bundesbank has constantly supported the hawkish comments of his colleagues on the ECB’s Governing Council, while German Retail Sales have remained relatively strong.

No one is yet suggesting that Olaf Scholz is “rearranging the deckchairs on the Titanic” but he does seem to be blissfully unaware of the dire economic situation that his country is in.

This is an almost total turnaround from the past year when the Central Bank Governors of several Eurozone members were almost begging the ECB to pause rate hikes and then cut rates to provide a boost to their economies.

It may very well be that the Bank of Italy and the Bank of Spain could vote for no change to be made to monetary policy since their economies are performing strongly and inflation has fallen even though their economic performance is little more than a delayed reaction to tier exit from the Pandemic.

German economic output has fallen to its lowest level since the Second World War.

The former head of the German Expert Council of Economics, Bert Rürup, considers the main problem to be the policy of the “debt brake”, which prohibits taking loans to replenish the budget.

“The first thing that is needed is the reform of the debt brake to quickly upgrade and modernize the infrastructure, which is severely dilapidated. It would also be wise to be more open to technology when it comes to the right energy transition,” Ruhrup said.

It has become more equitable for the German unemployed to receive benefits and work part-time rather than find permanent employment. This is a significant drag on the economy and the Treasury.

Although the economy grew by 0.3% in the second quarter, that is half the level of the UK and will be insufficient to drive a recovery.

It will be interesting to see if the attitude of the region’s Central Bankers has moderated when they return for their annual vacations over the next two weeks, although Christine Lagarde is expected to be in Jackson Hole.

The Euro continues to flirt with the 1.10 level which has proved a significant obstacle to its recent advance.

The next month will determine its path for the rest of the year, as both the Fed and ECB will set out their plans for loosening monetary policy.

It reached a high of 1.1047 last week and closed at 1.1024.

Have a great day!