ALEX BRUMMER: Federal Reserve shows some mercy

ALEX BRUMMER: Federal Reserve’s decision to raise interest rate by 0.5% is not shock ‘Volcker moment’ of sharper tightening demanded by some

Jay Powell is an unusual phenomenon in deeply partisan American politics. He is a Donald Trump choice as Federal Reserve chairman – and reappointed by Joe Biden. 

Powell was rewarded by the Democratic White House for steering the US through the pandemic without scarring to business and the workforce. 

But there was always going to be a moment of truth when a combination of near zero interest rates, together with running the dollar printing presses at full pelt, would impact on prices. 

Rise: Jay Powell is moving at an ‘appropriate’ pace to tighten policy in the face of an economy in danger of stuttering

Unlike Europe, the US is partly shielded from supercharged energy costs by domestic oil and gas. That has not proved sufficient to prevent US inflation from surging to 8.5 per cent over the last 12 months. 

Powell is now engaged in a high-wire reverse-ferret. He is moving at an ‘appropriate’ pace to tighten policy in the face of an economy in danger of stuttering. 

Last night’s rise in the central bank’s key interest rate by half a percentage point to a range of 0.75 per cent to 1 per cent is the first time the Fed has raised interest rates at successive meetings of its key committee since 2006. 

Financial markets were relieved that Powell is not going faster. It is not the shock ‘Volcker moment’, of the late 70s, of a sharper tightening demanded by some decision makers. The St Louis Fed has advocated a rise of 0.75 of a percentage point. 

Powell also is to begin the process of taking away the punch bowl by shrinking the $9trillion (£7.2trillion) haul of US government securities and mortgages bought up in Covid. The first tranche of $47.4bn (£37.7billion) will be released on June 1, rising to $95billion (£75.5billion) a month in September. 

Here, the Bank of England recognised the inflation dragon needed to be slain earlier and started to raise rates in December. A further rise from the current bank rate of 0.75 per cent is expected today. 

So far, UK consumer spending is holding up in spite of a loss of confidence and the squeeze on real incomes. A combination of higher borrowing costs and taxes means some hard pedalling ahead.

Speed merchants 

The world of fast motors is about as far as you can accelerate away from the surge in the cost of living. 

Nevertheless, Aston Martin is a British sports car marque which even the lustre of Daniel Craig and ‘No Time to Die’ has failed to rescue. 

The company’s most recent saviour, Lawrence Stroll, with a stake of 20pc, remains true to the cause. His first move was to shake up the engineering, building on the skills of Tobias Moers. Now he is going for a youth policy recruiting 76-year-old Ferrari veteran Amedeo Felisa as chief executive. 

Ferrari is a roaring success as a public company – powering up underlying earnings of £340m in the first quarter and projecting £1.4billion by year-end. 

In contrast, Aston Martin has just reported a first-quarter loss of £111m in spite of higher sales. Some Ferrari pizzazz at Aston Martin would be no bad thing. 

The company always appears to be behind the curve with its SUV, – the DBX707 – launched after Porsche and Lamborghini recognised the possibilities.

It will have to play catch-up on electric, where Porsche is disappearing over the horizon. All of this is disappointing given the contribution British-based F1 engineering makes to motoring tech. 

The combination of Felisa and new chief executive officer Roberto Fedeli, another Ferrari emigre, should speed change.

Falling stars 

What connects Just Eat Takeaway and Boohoo? Both have seen calamitous plunges in their share price due to overambition, governance and social failings. 

Boohoo claims to have resolved problems surrounding its sweatshop supply chain and has added more independent directors to its board. The build-up of clothing stocks on its balance sheet together with £251m of cash outflows (capital expenditure) means there is some way to go before winning back shareholder confidence. 

Just Eat is in a mess. Chairman Adriaan Nuhn stepped down just as the annual general meeting was getting under way and chief operating officer Jorg Gerbig lost his job after an unexplained complaint of ‘personal misconduct’. 

Global ambitions are in tatters after its decision last month to sell £6bn Grubilliohub after less than a year of ownership. 

Ignoring behavioural lassitude is proving an expensive error. 


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