US Federal Reserve boss Jerome Powell
(Picture: REUTERS)In 1979, with inflation at 11% and rising, newly appointed Federal Reserve chairman Paul Volcker called a surprise Saturday press conference in October to announce he was shaking up the central bank’s plans to get a handle on rising prices.
Within a year, the US interest rate was at 20%. The shock tactics triggered a recession and sparked protests but ultimately curbed rising prices and helped set the stage for a few decades of prosperity.
Jerome Powell, the man currently in charge of the Fed, channelled Volcker this week when he said there was “an obvious need to move expeditiously... to restore price stability”.
It might not sound like much, but in Fed speak that’s bombastic. Investors now expect a rate rise of half a percentage point next time out.
Contrast this with Andrew Bailey and his crew at the Bank of England. Appetite for aggressive action has diminished since February, when four out of the nine Monetary Policy Committee voted for a hefty 50 basis-point rate rise.
This time around, all but one backed a modest 25 basis hike — Jon Cunliffe, the dissenter, wanted to keep rates where they were. The prospect of a surprise Saturday announcement seems very far off.
Oil and gas shocks mean there are limits to how much the Old Lady of Threadneedle Street can do to keep a lid on prices. But they are in danger of being seen not to try.
The MPC currently hopes inflation takes care of itself as high prices put off spending. What if that’s the wrong call? A dangerous feedback loop of rising wages and rising prices could take root.
Even if the Bank doesn’t want to move too fast on rates, signalling to the market that it is on top of the inflation issue — not woefully behind it, as it has been for months — would be welcome.
Just talking the talk would be better than the current situation.
