ALEX BRUMMER: Donald Trump opts for downgrade in economic reputation by replacing Fed boss Janet Yellen with Jerome Powell
The really significant monetary event of yesterday was not the rise in UK interest rates but the nomination of Jerome Powell as next Federal Reserve chairman.
US presidents always want to make their mark on the central bank by selecting a member of their own party.
But they usually avoid removing an existing chairman after a single term for fear of disrupting the financial markets.
Moving on:?In replacing Janet Yellen with Jerome Powell, Donald Trump is opting for a downgrade in economic reputation
In replacing Janet Yellen with Powell, who already sits on the Open Market Committee, Trump is opting for a downgrade in economic reputation.
All of Powell’s three predecessors – Yellen, Ben Bernanke and Alan Greenspan – held PhDs in economics and had big academic and policy-making reputations.
Paul Volcker, before that, was a former head of the New York Fed and an experienced monetary policy-maker who negotiated the UK’s loan from the IMF in 1976.
In comparison with these predecessors, Powell looks underpowered.
He is a lawyer rather than an economist, and has a background at rapacious private equity group Carlyle and blue-blooded investment bank Dillon Read.
His Wall Street background suggests he may be more willing to dismantle some of the post-crisis protections for the financial system than his predecessor.
There will be continuity in that it has been fully signed up, until now, to the softly-softly approach of Janet Yellen in gradually normalising interest rates and reducing the Fed’s exposure to bonds bought during and since the financial crisis.
Powell may seem a non-political choice in that he was first nominated to be one of the Fed governors by President Obama. But that is down to the White House convention of nominating at least one governor from an opposing party.
Central bankers are tested in emergencies, and Bernanke and Yellen had much experience of this during and after the financial crisis. The markets might be relieved that Powell is not an inflation and interest rate hawk, so he is unlikely to interfere with the current go-slow tightening of policy. Whether he has the intellectual capacity to deal with the next meltdown, from wherever it may come, is not as certain.
The last non-economist to hold the post, G William Miller, who served under Jimmy Carter, was ignominiously sacked for failing to deal with runaway inflation and a dollar crisis. Not a wonderful precedent.
There is nothing wrong with ambition, and it is understandable why BT chose to flex its muscles and join the TV moguls and mobile phone giants.
It needed both to compete with the likes of Sky and Liberty Global-owned Virgin Media. But how much better it would have been for the telecom giant if it had devoted more resources into laying fibre and ultra-fast broadband, and offering decent customer service.
Chief executive Gavin Patterson faces competing calls on the company’s resources. Core profits slipped in the third quarter to ￡1.8bn but, more significantly, free cash flow was down 23 per cent at ￡689m meaning fewer funds to play with.
There is the popular promise of a progressive dividend, the whopping hole in the pension fund and ongoing costs of being a big media player. Global Services is a serial underperformer, despite impressive corporate clients.
Being a big TV player is tricky and, in spite of Champions League rights in a season when most English clubs are excelling, BT is having difficulty adding subscriptions. A combination of streaming and peak football mean soccer is no longer a potent tool.
Be that as it may, the first priority for new chairman Jan du Plessis is to take BT back to basics. If that means paring back the dividend and taking a share price hit, so be it. BT has still to demonstrate that fibre broadband pledges are not just big numbers, but actually represent reality.
Its core is its utility role in connecting the nation through Openreach.
If it cannot do that well, when Britain urgently needs to be digitally agile, then all else is superfluous.
Deputy governor Sir David Ramsden’s first appearance at an Inflation Report press conference showed him to be a little camera-shy.
Asked to explain why he voted against a rate rise, he respectfully declined to spoil governor Mark Carney’s novelty event and referred to a paragraph in the Monetary Policy Committee’s statement.
The former Treasury economist hasn’t yet drunk the Bank’s openness potion.
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