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BoE’s Ramsden: We must keep fighting inflation despite pain caused by rate rises
The Bank of England should “stay the course” and keep raising interest rates to cool inflation, despite the pain this will cause to households and firms, a senior policymaker at the Bank says.
Deputy governor Sir Dave Ramsden says the BoE is “acutely concious” that its interest rate rises this year are adding to the difficulties cause by the cost of living crisis, with “millions of households and businesses experiencing real hardship”.
Bu in a speech this morning, Ramsden insists there would be deeper damage if high inflation persists.
He told the Securities Industry Conference:
However difficult the consequences might be for the economy, the MPC must stay the course and set monetary policy to return inflation to achieve the 2% target sustainably in the medium term, consistent with the remit given to us.
The Bank has raised UK interest rates by half a percent at its last two meetings (the biggest rises in 27 years).
Ramsden was one of three policymakers who pushed for an even larger, 75bp, hike last month, but were outvoted.
Today he argues a larger hike would have helped get inflation under control.
At the time the three of us highlighted that the recent data outturns had already registered more persistent inflationary pressures and that medium-term measures of inflation expectations remained high.
We welcomed the reduction of the near-term peak in inflation which will result from the Energy Price Guarantee but noted that the additional support it is providing to households will add to demand pressure.
The Bank is due to next set rates on 3rd November, and Ramsden says the Monetary Policy Committee will also assess whether the “recent repricing of UK assets” reflects a changed assessment by markets of the UK macroeconomic policy mix between fiscal and monetary policy.
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Bank of England buys £786m of bonds in emergency intervention
Britain’s central bank has bought up £786m of long-dated bonds today to avoid financial turmoil following the mini-budget.
The purchases were made through the Bank of England’s intervention, launched last week, which allows it to buy up to £5bn per day of gilts.
The BoE also turned down £239m of offers in its reverse auction.
The scheme allows the Bank to prevent disorderly conditions in the market, after plunging bond prices threatened to drive some pension funds under. But so far, policymakers have only needed to spend a fraction of the £65bn firepower at its disposal.
BANK OF ENGLAND: IN OUR BUYING OPERATION, WE PURCHASED £786.300 MILLION IN GILTS.
— Breaking Market News ⚡️ (@financialjuice) October 7, 2022
U.S. INTEREST RATE FUTURES PRICE IN 92% CHANCE OF A 75-BPS FED RATE HIKE IN NOV, UP FROM 85.5% BEFORE SEPT JOBS REPORT
— Special Situations 🌐 Research Newsletter (Jay) (@SpecialSitsNews) October 7, 2022
Whitbread raises pay for third time this year
Sarah Butler
Back in the UK, the owner of Premier Inn is raising pay for the third time in a year with a 4% increase, my colleague Sarah Butler reports.
Whitbread said it was spending £15m on upping pay for over 30,000 people working in its hotels and restaurants which include Beefeater, Thyme Bar & Grill and Cookhouse.
Those working in Premier Inn and over 23s in the restaurants will get £10 an hour from 4 November, just ahead of the £9.50-an-hour legal minimum.
The company is also handing a £300 one-off cost of living payment to those workers and 4,000 more at its customer contact centre in Dunstable while 1,400 salaried hotel and restaurant managers will also benefit from salary increases to ensure a minimum differential is maintained.
Whitbread had previously given pay rises in April 2022 and October 2021, which combined with the latest rise represent an uplift of over 10%.
The Whitbread pay rises follow similar moves by major companies including Tesco, Aldi and Pret a Manger as high street businesses battle to attract and retain staff amid high employment levels ahead of the busy Christmas season.
Wall Street has opened with another bump, as traders anticipate further rate rises following the Jobs report:
The Dow Jones industrial average is down 1%, or 316 points, at 29,610.
Normally a 263,000 gain in new jobs and 3.5% unemployment is great news for the economy. These are not normal times. Labor market not cooling fast enough to stop rapid Fed rate hikes aimed at taming high inflation. And thus odds of recession grow. https://t.co/cZBQZl5kSu pic.twitter.com/y299ZwTcWf
— Jeffry Bartash (@jbartash) October 7, 2022
The Fed will not like the look of this jobs report, agrees Seema Shah, chief global strategist at Principal Global Investors:
“Today’s job number is a hawkish reading, with almost all the elements of the report moving in the wrong direction for the Fed. Payrolls were broadly in line with expectations but, importantly in this good news is bad news, period: markets were hoping for a downside surprise today. Instead, the number only confirms that the Fed needs to hike rates by a fourth consecutive 0.75% in November.
“More significantly, with unemployment back down to 3.5% and participation falling again, where is the evidence that tighter Fed policy is having any impact on the US labour market? Job openings may be coming down, but if that isn’t combined with greater numbers of job seekers, wage pressures will remain still at their elevated level.
“With the Fed’s dot plot pointing to policy rates closer to 5% than 4% next year, we have a market that is wishing for the economy to slow quickly. That’s when you know there is only one path ahead: risk assets have further to fall.”
One of those “good economic reports=stock selloff” days. Employers added 263K jobs in September and the unemployment rate fell to 3.5% while wage growth remained strong. Not the recipe for a Fed pivot. #DOW -278
— Jason Brooks (@brookskcbsradio) October 7, 2022
The September jobs report is unlikely to dissuade the Fed from further aggressive interest rate hikes over the next few months, writes Andrew Hunter, senior US Economist at Capital Economics.
Admittedly, the slowdown in jobs growth [from 315,000 to 263,000] largely reflected a 29,000 drop in state & local government education payrolls.
As in the past two years, that reflects a seasonal issue as fewer teachers than normal returned for the new school year – in which case employment gains will rebound over the months ahead. Private payroll growth actually picked up slightly to 288,000, from 275,000 in August, driven by stronger job gains in healthcare, leisure and other services.
As we had suspected, the 786,000 surge in the labour force in August was partly reversed last month and, with the household employment measure rising by 204,000, the unemployment rate fell back to 3.5%, matching the 50-year low seen before the pandemic. The upshot is that there is still little sign that worker shortages are going to be solved by much stronger supply, with the adjustment needing to come instead through weaker labour demand.
Pound drops towards $1.11 after US jobs report
The dollar is rallying, on expectations that September’s jobs report will spur on the US Federal Reserve to keep raising interest rates.
That’s nudged the pound down. It’s down a third of a cent at $1.113, the lowest since Tuesday.
Paul Craig, portfolio manager at Quilter Investors, explains:
“With the US jobs report coming in slightly better than expected and the unemployment rate going down, we remain in a search of a middle ground. In normal circumstances, a better-than-expected jobs report would be considered a good thing and a likely catalyst for rise in equity markets. But these days, we live in a parallel world where good news is bad, and bad news is good as investors try to anticipate the US Federal Reserve’s next move and whether or not they will temper their hawkish stance.
“With this jobs report it seems clear we are on course for another significant hike from the Fed, with the market pricing in a 75bps rise in interest rates at its next meeting.
There is a troubling irony that good news is bad news for the markets:
Good Morning Everyone! The U.S. just reported the smallest gain in new jobs since April. But at 263,000 it’s too strong and the Fed will continue aggressively raising rates. Too many employed people in America is a bad thing apparently.
— Genevieve Roch-Decter, CFA (@GRDecter) October 7, 2022
America’s leisure and hospitality firms added 83,000 jobs in September including 60,000 at restaurants and bars.
But, the sector still employs 1.1m fewer people than before the pandemic.
🧵Jobs added came in above consensus at +263k, with little revision to the prior months. Most of the strength came from leisure & hospitality & other lower paying services jobs. Hot jobs = hikes still on. pic.twitter.com/2W49d9oInF
— Liz Young (@LizYoungStrat) October 7, 2022
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