ALEX BRUMMER: Fateful signals from America as US inflation skyrockets

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ALEX BRUMMER: Fateful signals from America as US inflation skyrockets and Federal Reserve turns off the taps










The US central bank’s view that the soaring cost of living is transient seems jagged.

The 6.2 percent rise in consumer prices in the United States in October is a shock and brings inflation to its highest level in three decades.

Federal Reserve Chairman Jay Powell started a reverse ferret by reversing $ 120 billion a month in quantitative easing.

Shop closing: Federal Reserve Chairman Jay Powell (pictured) has started slashing $ 150bn (£ 89bn) a month of quantitative easing

When the Governor of the Bank of England, Andrew Bailey, looks across the Atlantic, he will think: “There, but for the grace of God …”.

There is a fundamental difference between what is happening across the Atlantic and here. The creation of broad money in the United States over the past two years has been much faster than in Britain, and would turn the high priest of monetarism, Milton Friedman, in his grave.

The specter of uncontrollable inflation puts Joe Biden in trouble. He must soon decide whether to rename Powell, a former Republican investment banker chosen by Donald Trump, or whether to give his stamp to the Fed.

Senate approval is required, and Powell’s term ends in February, an urgent decision looms. Powell could not have done more to prevent the U.S. economy from sinking into the pandemic, so there is no doctrinal reason not to give him a second term.

What is more concerning is the breakdown in ethical behavior at the Fed with two regional presidents and a key official being exposed for trading government bonds. This is not a good look.

History tells us that a Fed boss who loses control of inflation pays with his job.

In addition, the President is a traditional Democrat and places tribal politics (witness to Northern Ireland) above all else.

This is why the replacement of Powell by Lael Brainard, professor and Democrat currently decision maker of the Fed, could be attractive.

What will worry inflation watchers in the US and Britain is that even after the removal of volatile energy and food prices, US core inflation jumped by 0, 6% in October. Higher prices work their way through the nerves of the economy.

Bailey and the Bank of England pushed money markets to the top of the hill with the dangling of a rate hike, then left them stranded last week. The governor will want to be more decisive next time.

The United States has sent out a warning and the Bank should soon have clearer evidence of the impact of the end of the holiday.

At 0.1 percent, the UK discount rate is negligible and even an increase to 0.25 percent is not going to scare the horses off. Homebuyers have enjoyed a mortgage honeymoon, but all good things come to an end.

What is important is to send the signal that there will be no turning back to the bad old days of high single digit inflation or worse.

Glorious food

After a decade of unrest on the UK’s main streets, which saw BHS, Debenhams and Arcadia defeated and House of Fraser reduced to the shadow of its previous greatness, Marks and Spencer is one of the last big names surviving.

The strategic decisions made by President Archie Norman and CEO Steve Rowe in the pandemic are paying off.

Investing in food through the Ocado joint venture and by opening more space in stores is producing great returns.

Downtown commerce can be a disaster, but malls and shopping parks are doing better and the retailer has taken over some of the best premises in Debenhams.

The result is improved profits, an impressive increase in cash flow to £ 287.6million from a negative level two years ago, and the promise of over £ 500million in profit from here the end of the year.

The jury is still out on fashion and housewares, but there are bright spots in children’s wear, denim, and more casual, sporty-style adult outfits.

Marks and Spencer still has a long way to go from the days when its group of small investors could expect stock issues and a dividend.

But hope is eternal.

Court Google

The UK Supreme Court has ruled out compensation for victims of data misuse by Google.

On the other hand, the Luxembourg Court has just confirmed a fine of 2 billion pounds sterling against the internet giant for its infringements of competition.

Maybe European justice is not so bad after all.


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