Mountain to climb for world’s central bankers
T
he great and the good of
central banking
gather this week in the
rustic holiday resort of
Jackson Hole, Wyoming.
Lakes, rivers and a
stunning mountain backdrop will
greet the policymakers in the Cowboy
State as they escape Washington DC
and other political centres where the
heat is rising.
Trout fishing is a particular draw at
Jackson Hole. In 1982 the Kansas City
Fed wanted to bring Paul Volcker,
chairman of the US Federal Reserve, to
the event. But how to persuade him to
travel the 2,000 miles from head office
to a conference halfway across the US?
With a fly and tackle, of course.
Volcker, a keen angler, was happy to
attend and the bash has become a
fixture of the economic calendar.
This year the officials in attendance
have even bigger fish to fry than usual.
The apparent impending economic
crunch should concentrate minds.
Recessions are usually a surprise,
wreaking havoc on livelihoods,
businesses and markets that were
ill-prepared for their arrival. The next
apparent downturn has been
well-flagged, however. Scarred by the
financial crisis, economists,
policymakers and businesses have
been on high alert for the past decade.
Central banks have built up big, new
departments focusing on financial
risks, scouring the world for hazards
and potential bubbles that could cause
trouble. Government departments,
banks and big businesses are the same.
As a result, warnings of the dangers
of years of ultra-low interest rates have
been almost constant. Economists
have watched shares, bonds and
property rocket in value, fuelled by
cheap debt, and warned that a crash
back to Earth is inevitable when
interest rates rise.
Sources of political instability such
as Brexit have further raised the alarm.
The rise of China has created a whole
Jackson Hole performance (which
pre-announced QE2) or will he remain
behind the easing curve?”
It is not too late for Powell to save
the day, according to John Normand at
JP Morgan. “The US expansion looks
salvageable because a few Fed rate
cuts have been able to reverse
previous growth slumps (1987, 1995,
1998, 2016), as long as the US private
sector hadn’t been over-leveraging
when a shock hit,” he says.
The bigger problem may be in the
rest of the world, where monetary
policy is already working flat out,
often with sub-zero interest rates, but
growth has not taken off. Someone
other than central bankers will have to
take up the slack.
The European Central Bank’s Benoit
Coeure, Philip Lane and Sabine
Lautenschläger are in attendance, yet
“the essential policymakers may not
be in the room”, says Normand.
“Hopes are emerging that next
week’s Jackson Hole symposium will
spawn creativity because Europe and
Japan require it, but without fiscal or
structural commitments, it might be
hard to translate Wyoming’s policy
papers into transformational policy
and market reversals.”
It is not only the rich world that
needs to pay attention to Powell’s
words. The Kansas City Fed’s careful
notes on the event contain hints of the
reasons why.
Central banks’ actions “have
implications for capital markets and
financial flows”, it says. Decoded, this
means “look out for wild swings in
asset prices and floods of cash out of
struggling economies”.
“Shifts in monetary policy in one
country can create spillovers through
financial markets affecting others,” it
notes, particularly pointing that one atemerging markets. That is to say, when
US interest rates rise, cash floods out
of emerging markets and into the US,
as investors can get better returns in a
safer market, trashing investment
levels and currencies.
On the other hand, when US rates
are slashed it can lead to flows of “hot
money” back into those emerging
markets, potentially short-lived
investments that have dramatic effects
on exchange rates, asset prices and
financial stability.
If markets have priced in plenty
more rate cuts, the immediate risk is
that Powell offers too few – pushing up
the dollar, making emerging markets
struggle to pay US-denominated debts,
and offering little extra support for the
world’s biggest economy.new set of recession risks, too. The US
is fertile ground for panic: a fiscal
spending spree fading, Donald
Trump’s trade war tearing up the old
certainties of globalisation and
political conflict rife.
The result is a well-advertised
economic slowdown across much of
the world. Standard & Poor’s estimates
there is a one-in-three chance of the
US entering a recession in the next
12 months. Global institutions such as
the IMF have slashed growth forecasts.
So a slump, and maybe a recession,would not be a surprise. The question
this week is: what will central banks
do about it?
Jerome Powell, now in Volcker’s
chair at the Fed, will take centre stage.
The theme of this year’s event is
“Challenges for monetary policy”,
which, given the backdrop, might
seem a tad tame.
But in the circumspect language of
central banking, this is a very clear
warning that something is wrong in
the world economy.
Powell has moved cautiously so far.He has made one modest interest
rate cut to calm markets and the
occupant of the White House. As the
first in a decade, markets viewed it as
a watershed and anticipate rate cuts at
all remaining policy meetings this
year. The chairman is not
committed to that, in part because
some risks, such as the trade war, are
highly unpredictable. A sudden
outbreak of peace and the restoration
of trade flows could change his
calculations drastically.
But as the tariff conflict intensifies,economists increasingly expect a
change of tone and will be watching
closely on Friday.
“Will Powell take the opportunity to
be a bit more honest about what is
driving the Fed to ease – other central
banks’ relative policy and especially
Trump’s fiscal excesses? A real turn
lower in the US dollar likely requires
the Fed to cut more sooner and restart
massive QE [quantitative easing],” said
John Hardy at Saxo Bank.
“Is Powell ready to go there and
re-enact Bernanke’s famous 2010All eyes on Federal
Reserve chairman at
Jackson Hole as
spooked markets
scramble for clues
on further rate cuts,
reports Tim Wallace
Business
City considers shorter trading
day to attract more female staff
By Lucy Burton
CITY lobby groups have opened talks
with banks and investors about short-
ening stock market trading hours in a
radical move aimed at helping working
parents.
The plans, which are at the early dis-
cussion stage, are aimed at ending the
era of testosterone-fuelled trading
rooms by encouraging more women
not to drop out of senior City jobs due
to childcare issues.
Simon Lewis, the boss of bank lobby
group the Association for Financial
Markets in Europe, said: “Compressed
market opening times is an issue we
are discussing with our members.”
“Work is at an early stage but we are
supportive, in principle, of proposals
that would encourage more flexible
working practices in the European
equities trading market and that could
help to promote increased diversity in
the sector.”
The Investment Association (IA),
which represents Britain’s £7.7 trillion
funds industry, has also begun talks
about a shorter day with its members.
According to Financial News, which
first reported the talks, the options
being discussed include opening
equity markets an hour later at 9am
and closing an hour earlier at 3.30pm.
One source said that the proposals have
not yet reached consultation stage.The move is the latest example of the
male-dominated financial services in-
dustry trying to change its image in a
bid to retain more female staff.
Earlier this year, the London Metal
Exchange introduced a code of con-
duct for the first time in its 142-year his-
tory, months after one of its membersheld a networking event at the Playboy
Club in Mayfair during LME Week
that has previously seen strippers give
traders the password “metal” for free
entry into Stringfellows.
Meanwhile, the 333-year-old insur-
ance market Lloyd’s of London this
year decided to close its on-site pub
and introduce a stricter code of con-
duct after it was rocked by allegations
of sexual harassment and bullying
against female staff.
Just 13pc of individuals with ap-
proval from the Financial Conduct
Authority are women. Megan Butler,
the FCA’s most senior female regulator,
told The Daily Telegraph last year she
had to fight to keep her professional
position when she first became a
mother and so deliberately never dis-
cussed her family life in the office.
A spokesman for the IA said the
group has a strong interest in culture
across the industry “and how this can
play a pivotal role in fostering good
mental health and creating inclusive
workplaces”.6.5
Number of hours the trading day would be
reduced to if market opening times were
restricted to between 9am and 3.30pmJLR cuts costs with plan for
giant central warehouse
By Alan Tovey
JAGUAR Land Rover has revealed
plans to build a giant parts distribution
warehouse in the Midlands in the latest
phase of a £2.5bn cost-cutting drive.
Britain’s biggest carmaker is work-
ing with developer IM Properties as it
seeks planning permission for the
2.9 million sq ft warehouse between
Birmingham and Leicester. The new
facility would gather spare parts for
JLR cars from suppliers in the UK and
abroad, and then ship them to dealers
and garages in 80 countries.
If given the green light by council
planners, the warehouse would open
in 2022, consolidating on to a single
site the company’s 10 smaller UK facili-
ties that employ 1,200 people. The pro-
ject – which would be operated by a
subcontractor – is likely to mean job
losses at Neovia and Unipart, which
run the spares parts business for JLR.
Chief executive Ralf Speth has
warned that Brexit could result in pro-
duction stoppages at JLR’s UK plants as
failure to secure a trade deal would
mean disruption to its supply chains.
About 40pc of parts for JLR vehicles
arrive from abroad.
However, the Tata-owned company
denied that the warehouse plan was
related to Britain leaving the EU.
JLR said the scheme was “part of a
long-term strategic restructuring and
consolidation” of its global spare parts
business, and was begun before the
2016 referendum, so is not Brexit-
related, nor is it to provide short-term
Brexit contingency planning.
Centralising the spare parts business
is aimed at saving £2.5bn in the face of
losses that have prompted JLR to cut
10pc of its global workforce.
Last month, the Coventry-based
company reported a £395m quarterly
pre-tax loss, as the automotive sector
faces falling demand and the prospect
of a global trade war.Jaguar Land Rover
chief executive Ralf
Speth has warned
that Brexit could
disrupt the firm’s
supply chains‘Will Powell take the
opportunity to be a bit more
honest about what is
driving the Fed to ease?’
‘A real turn lower in the US
dollar likely requires the Fed
to cut more sooner andrestart massive QE’
GETTY1990
Eight Eastern Bloc nations introduced
themselves to the financial world at
Jackson Hole in this year2005
The year Raghuram Rajan, then IMF
chief economist, warned the world was
getting more dangerous. Few listened2010
The year Ben Bernanke prepared the
way for QE2. Ultra low rates were
here to stay3
Running time in days, from Aug 22 to
24 - it does not take long to change the
world in WyomingSale of British Steel
engineering unit
hinges on lender
By LaToya HardingTSP PROJECTS, the engineering arm
of British Steel, is awaiting approval
from a key lender to secure its sale to
French rail giant Systra.
The Official Receiver, which took
control of British Steel in May after it
fell into insolvency, and TSP are report-
edly aiming to convince the holder of a
floating charge over the unit’s assets to
release it and let the takeover proceed.
The lender is thought to be Citibank.
Systra, which specialises in transport
infrastructure, has been mulling a bid
for TSP since British Steel’s liquidation.
The move, first reported by Sky
News, comes just days after Ataer Hold-
ings entered exclusive talks to buy the
UK’s second-biggest steelmaker.
The investment arm of Turkey’s mil-
itary pension fund Oyak said it had
signed an agreement to take on British
Steel and its subsidiaries, saving 4,500
jobs. Ataer is expected to pay about
£70m and will also receive taxpayer-
backed commercial loans and grants
said to be worth as much as £300m.
Oyak wants to integrate the UK busi-
ness into its existing steel operations.The Daily Telegraph Tuesday 20 August 2019 *** 29
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