Pussy-footing central bankers have ushered in years of endless pain

There is a risk of my becoming a bore. No, don’t say it! But I do sort of mean it. Since the earliest days of the current spurt in inflation and since the beginning of the critically delayed central banks’ monetary policy response I have questioned the validity of the 2% inflation target. Barely a day goes by when thoughts and reflections on monetary policy do not make it into my musings and with them my disagreement with many of the lines which central bankers are casting out and with the economists and analysts who swallow them hook, line and sinker. Thus my satisfaction with the Bank of England’s chief economist when, although confirming the Old Lady’s commitment to the 2%, added that no target date could be applied to the policy. In other words, it is the objective to return to 2% inflation even if it takes years or even decades to get there. Or at least that was the inference.

Overnight, Philip Jefferson was on the wires. Jefferson is a recent Biden appointee to the Board of Governors of the Fed – he only joined the board in March 2022 to fill the seat vacated by Richard Clarida – and a man about whom I know little. Anyhow, he was out there confirming that the Fed has no intention of making any adjustment to its 2% target which does nothing other than confirm that it is also internally a subject of discussion. Some, myself included, think of it as superannuated. Others believe that altering it would leave the Fed, and all its peers who adhere to the same objective, vulnerable to the accusation of being opportunistic and of fluttering in the wind. Credibility is the watchword.

Not that our central bankers have much to crow about. Their record since the beginning of the century, other than when it has come to liberally slashing rates at any opportunity isn’t exactly sparkling. They certainly made a rod for their own backs by having opened Pandora’s box in the firm of QE. The period in which they touted “transitory inflationary pressures” must rate as one of the worst ever misreads and their timidity in acting early and decisively and their namby-pamby pussy-footing when it came to grabbing the inflation bull by the horns will turn what would have been a painful end into years of endless pain. That they, by way of ultra-loose monetary policy which went on for far too long, themselves created the asset price monster is best not recalled.

So Jefferson confirms that there is a debate going on. Not that there will any mentions to that effect in the published minutes of the FOMC. Does the Fed lose credibility if it revises the inflation target or would it in fact help to rebuild its battered reputation after coming out of the early years of this decade a country mile behind the curve?

At the time of writing, the 2 year note is trading at 4.80% and the 10 year note is at 3.93%. That leaves a more and not less inverted yield curve at 87 bps and people are again beginning to focus on the 2s breaching the 5% barrier and the 10s rising to and above 4%.

It took Brentford FC 74 years to fight its way back into the top flight of English Football. Detroit Browns are still waiting for their first appearance in the Super Bowl, a competition introduced in 1966. You have to be in it to win it. Maybe the Fed, the BofE and the ECB will soon be joining the fans of Brentford and Detroit where patience is a virtue but where hope springs eternal.

And thus to Westminster where Rishi Sunak has told the Brextremists to get back in their box and to accept the agreement which he has reached with Brussels on how best to manage the impossible situation facing Northern Ireland in the context of the Northern Ireland Protocol as signed by Boris. I well remember the worries, even amongst died in the wool Brexiteers, that Britain lacked the talent pool required in order to exploit the freedoms which withdrawal from the Union could potentially bring with it. Boris “got Brexit done” but then seemed more interested in increasing the number of children he had fathered than ironing out some of the most critical wrinkles in the divorce papers. It was a young Woody Allen who as a stand-up comedian got the laughs for his line that he had been trying to do to this girl what President Eisenhower was doing to the country. Boris seemed to have been successful on both fronts.

Britain had – or has – lost its sense of purpose. Its history is being questioned on all fronts and its manifold achievements are being belittled. Skin pigmentation is an evolutionary thing and where it is colder and less sunny, skin will be paler. I suppose that now makes Charles Darwin a white supremacist because he would suggest that Europeans are white for a reason and that northern reaches are visibly their natural habitat. Most of the plants in my garden are not native to these islands and yet they have naturalised. They coexist happily with the natives, spread and thrive and are loved for what they are and not for where they originated from. But the most invasive and least controllable such as bracken or knotweed are imports which at the time were thought to be fine but which have proven not to be. Even ground elder, Aegopodium podagraria, the bane of my life was first introduced as a decorative plant.

Rishi Sunak, the Prime Monster, is a first generation Brit of Indian heritage. I too am of the first generation of my family to be born in this country. That does not make me feel any less British, or even English, than the next man and I am pretty sure that Rishi doesn’t feel much different. If there is one particular thing that annoys me intently about this country, it has to be on one hand the parochial nature of the media and on the other, when they do report from beyond the borders, they look endlessly to the Unites States. Whatever is the fashion there becomes the fashion here. We are not the country of mass shootings, of routine police brutality towards its citizens of all colours and of Harvey Weinstein and #metoo but that is what fills the column inches and the hours of broadcasting.

The problems we are facing such as enormous unfunded pension liabilities, a creaking public health service and of course the Russian threat, not to mention that of the CIA, put this country in a position far more redolent of that of its European neighbours than to that of the United States. The media, both mainstream and social, spend their lives fighting a race war which doesn’t exist and even if it did would be so much smaller than the noise made over it would have one believe.

I’ve looked into the critical race theory and all that jazz which seems to occupy every waking hour of some academics and by way of my periodic visits to one of those former sugar producing colonies am faced with the aftermath of slavery, albeit that it was abolished in British territories in 1833, 190 years ago. How many of those who are shouting loudest, however, can count the number of their direct relatives, grand parents included, who were murdered in the gas chambers for simply being different? Do we Jews insist on the dismantling and cancelling the Catholic church because it refused until Pope John Paul II visited the Grand Synagogue in Rome in April 1996 to formally declare that not all Jews bore the historic burden of having killed Jesus Christ? As recently as 1965, Pope Paul VI had in his Easter address still firmly assured the faithful of the Jews’ guilt.  I digress.

Sunak’s signing the revised agreement on the position of Northern Ireland and the way in which a compromise has been worked out – maybe not perfect but a darned site better than what had been there before, or not there if you prefer – should do something  towards creating a template for the future. The agreement tries to focus on we do want rather than on what we don’t and is therefore a significant step on bringing to an end two or three years negative for negative sake. Time for a spot of “can do” to end the moaning. The success of the Windsor Framework is confirmed by the howling and waling and gnashing of teeth emanating from the ERG, the Brextremist European Reform Group.

The agreement is, nevertheless, no more than a compromise which acknowledges that even 101 years after Ireland had been divided, the issues of sovereignty remain unresolved and most probably unresolvable. In fact, and although this will barely ever be mentioned in the British press, it is ultimately the EU which has backed down further in arriving at a workable compromise. One cannot but agree that Lao Tse was right when he enshrined in the Tao Te Ching that even the longest journey begins with but a single step.

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