The Federal Reserve has finally become very serious about inflation.
After pussyfooting around for more than a year, dismissing the inflation threat as ‘transitory,’ ignoring a red-hot jobs market and trillions of dollars of fiscal largesse dumped on the American economy by Joe Biden, the US central bank is pulling up the drawbridge.
Last night’s three-quarter of a percentage point rise in the federal funds rate, to a range of 1.5 per cent to 1.75 per cent, is the biggest hike for 28 years.
After pussy footing around for more than a year dismissing the inflation threat as ‘transitory,’ the Federal Reserve is pulling up the drawbridge
Just to add to the market drama, it has raised its forecasts for future interest rates, projecting its key rate will peak at 3.8 per cent in 2024.
It is hard to think that it won’t be regarded by the hawks on the Bank of England’s interest rate-setting Monetary Policy Committee as the green light to go harder when it decides on the bank rate today.
The space for Governor Andrew Bailey and the Bank to go faster on interest rates is smoothed by the decision of Chancellor Rishi Sunak to inject an extra £15billion of support into the UK economy to help with energy bills for the least well-off.
The widely anticipated rise in US official rates is already having widespread global repercussions.
It has sent the S&P 500 share index into bear territory (off by 20 per cent), caused US bond rates to soar and is destroying bitcoin. It has also contributed to a sharp depreciation in sterling and the Japanese yen against the dollar on foreign exchange markets.
The European Central Bank (ECB) has received a wake-up call. Turmoil in the markets for eurozone country bonds has caused anxiety, raising fears of a return to the euro crisis of a decade earlier with southern-tier countries under pressure.
At a special meeting the ECB indicated it was looking at a new tool to assist struggling states.
Pressure is on its president, Christine Lagarde, to resile from a more aggressive interest rate policy in the face of a eurozone inflation rate which hit 8.1pc last month.
Mario Draghi, her predecessor, has cautioned against precipitate action. If Europe wants to calm a threat of runaway inflation it may have no choice but to pay attention to the Fed’s sharp tightening.
Arming Britain
Bringing Arm Holdings back to the London Stock Exchange was always going to be a big ask.
The idea Softbank chief Masayoshi Son would choose the City for an initial public offering for Britain’s smart-chip designer Arm Holdings always was a long shot.
A muscular campaign by this newspaper to block the bid from competitor Nvidia for Arm and to galvanise the Government into securing a London flotation looks to have had an impact.
There have been personal interventions by Prime Minister Boris Johnson, Chancellor Rishi Sunak and Business Secretary Kwasi Kwarteng, all of whom have lobbied Softbank to bring the ownership of the Cambridge-based firm back to London.
It was the Tory administration of Theresa May and Philip Hammond which sold the pass in the first place.
The speculation is that the London market will receive some pickings from the rich person’s table through a secondary listing.
All the better if a proportion of the shares in the £30billion-plus offer were reserved for UK long and retail investors.
After all, Arm is largely a product of Cambridge tech excellence and much of the research and development and design is in the UK.
It has never been clear that the Nasdaq rules would allow an all-American listing when so much of the intellectual property and so many jobs are here.
The UK is a huge draw for inward tech investment, with artificial intelligence, smarter chips, defence technologies and fintech all fast-growing sectors.
Arm should not be allowed to become the fish which got away.
Cricket swoop
The ambition of Boots bidder Mukesh Ambani’s Reliance knows no boundaries.
His latest buy is the richest cricket franchise in the world the IPL (Indian Premier League) – along with Test match hero Jonny Bairstow – snapped up for $3billion (£2.5billion).
Ambani’s digital sports assets include America’s NBA, the football World Cup as well as La Liga and Serie A. Reliance is using the Murdoch model of sports broadcasting as a pathway to domination.
Howzat!
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