Yellen hints at US rate hike; Ed Balls calls for Bank of England reforms – as it happened
Former Shadow chancellor and Strictly Come Dancing contestant says better political oversight needed to address 'popular discontent' against central banks
- Latest: Janet Yellen testifies to Congress
- Balls writes paper on central banks
- Balls: Central banks should give up some political independence
- Ex-MP tells Today Programme that more accountability needed
- Read his academic paper here
6.02pm GMT
There was still a note of caution around, understandably given the ructions of recent weeks, but investors still managed to push most European markets higher. In the UK, the FTSE 100 was boosted by better than expected retail sales figures, but Italy underperformed amid worries about its forthcoming referendum on constitutional reform. The banking sector in Italy was under particular pressure again.
In the US, markets took Janet Yellen's testimony in their stride, with the Fed chair hinting that a rate rise was likely next month. Disappointing results from Wal-Mart helped limit any gains, however. Jasper Lawler, market analyst at CMC Markets, said:
A rapid rise in retail sales in October helped UK stocks gain ground on Thursday despite poorly-received results from Royal Mail. There was a more mixed performance in European shares, with German and Italian indices weighed down by the banking sector.
US markets opened mostly higher, though disappointing Walmart results dragged the Dow Jones [down].
5.02pm GMT
If you want to listen to Yellen's testimony again, it can be replayed here.
4.58pm GMT
Janet Yellen, in both her prepared remarks and subsequent comments to Congress, strongly suggested an interest rate rise was on the cards in December, as most economists now expect.
She said the economy had strengthened since the Fed's last meeting and inflation was moving up.
4.50pm GMT
Much discussion of the lack of wage growth and how to tackle it, and how to help people who are not benefitting from the growth in the economy.
And some comments about how low interest rates mean companies are more likely to do share buybacks than invest. Yellen says its not clear to her why investment spending has been weak, but denies the Fed's low interest rate policy is part of the problem.
4.07pm GMT
Questioning turns to cybersecurity and what steps Fed has taken to address the risks.
Yellen says cybersecurity is one of most significant risks the country faces, and the Fed is working with others to make sure there is a system to deal with them. Have to make sure controls financial institutions have in place are sufficient. We are proposing highest standards firms [of systemic importance] should meet. And it is a broad threat and Fed cannot deal with it alone.
3.56pm GMT
She says that in every country that has suffered hyperinflation, it was because central banks had to compromise their independence.
3.50pm GMT
Yellen defends the independence of central banks (a hot topic at the moment).
She says Congress establishes the goals for monetary policy, but it is critical the central bank can make independent decisions to pursue those goals without interference while being accountable and transparent.
3.42pm GMT
#YELLEN says wants to serve full #Fed term. Despite criticism by Pres-elect @realDonaldTrump They also disagree on #DoddFrank fincl. regs.
3.41pm GMT
Yellen is asked about the Dodd Frank, the legislation brought in to regulate financial institutions after the financial crisis, which Donald Trump has talked about repealing.
Yellen says she would not want to turn back the clock, and would not want all the improvements under Dodd Frank eliminated.
3.37pm GMT
More on the aftermath of the election.
Yellen says that markets are anticipating fiscal policy will be expansionary, and this could have inflationary consequences. But she adds that there is still much uncertainty about future policies.
3.32pm GMT
Can you envisage any circumstances you would not serve out your full term?
Yellen: No I cannot...I fully intend to serve out my term [which ends in January 2018.
3.28pm GMT
Now for questions.
Does the election result effect the Fed's view on raising rates?
3.17pm GMT
Yellen has begun her testimony (which as a reminder is available here).
3.11pm GMT
As the introductions begin at Congress ahead of Yellen's testimony, analysts continue to suggest a rate rise in December is pretty much nailed on. Neil Wilson at ETX Capital said:
Roll on December. Aside from a slight rise in US Treasury yields we've seen little major effect on financial markets after Janet Yellen said interest rates could rise soon.
The fact is a December rate hike has already been priced in - markets think there is a roughly 90% chance the Fed will increase the target federal funds rate. It now looks almost impossible for the Fed not to raise rates next month - it's painted itself in a corner and has to respond with a hike or all hell will break loose in the markets.
2.43pm GMT
Ahead of Janet Yellen starting her testimony to Congress [full text here], there has been a spate of US data, none of which makes a rate rise in December less likely.
The consumer price index rose 0.4% month on month in October, and 1.6% year on year, both in line with expectations. Economist James Smith at ING Bank said:
US inflation is not a massive concern for the Federal Reserve Open Markets Committee . That's the upshot of today's CPI report, which showed that the headline continued to rise (to 1.6% YoY) and continues to converge on the core rate (now 2.1%) as the effect of earlier oil price weakness filters out. In fact, the transport component made the first positive contribution to the 12-month rate of inflation since 2014.
As this energy drag disappears, we expect the headline rate to hit the Fed's 2% target in the second quarter of next year. If there is one criticism of the overall inflation picture, it is that price gains are not especially broad-based...
2.30pm GMT
Donald Trump's election victory has alarmed and appalled many of our readers. But a new survey has found that wealthy US investors are now MORE confidence about their prospects.
UBS Wealth Management Americas latest quarterly Investor Watch report found a jump in optimism among high net worth and ultrahigh net worth investors since last week's election.
UBS surveyed 1,200 wealthy investors immediately before and after the election to determine changes in sentiment and mindset. Since the election, 48% of investors feel optimistic about the short-term economic outlook, up from 39% just 3 weeks earlier.
This rise is driven by a sharp increase in optimism among Trump supporters that outweighed a decline among Clinton supporters.
2.14pm GMT
The Economist's Buttonwood column has swiftly commented on Ed Balls' proposal to reform central bank independence.
It argues that some of the criticism heaped on central banks has been unfair:
A lot of the current criticism of central banks assumes that they had some hidden political agenda (to support the election of Hillary Clinton or to warn voters off Brexit) behind their policy shifts. That is nonsense, in my view. In a low growth, low inflation world.
Central banks have had little option but to keep policy loose; many of those that tried to tighten policy have been forced to retreat. and central banks tend to reflect the consensus view of economists which was that Brexit would be bad news (those who think the consensus view has been proved wrong might note that the government has yet even to start the exit process).
On its own merits, this sounds entirely sensible. But if you think central banks are in the political firing line now, what would happen if they started commenting on fiscal policy, particularly close to an election? Imagine if Ms Yellen were to advise the Republicans against tax cuts for the rich?
Anyone with an interest in monetary policy should read this excellent paper. But many will find reasons to disagree with it.
Central Bank Independence Revisited: after the fin crisis, what should a modern central bank look like? - https://t.co/Y5QuM9VTZ5 https://t.co/7iWqwVWUdw
1.55pm GMT
Janet Yellen's prepared testimony hasn't moved the markets; which makes sense, as most Wall Street economists already expect a rate hike in December.
U.S. futures are little changed after Yellen's comment https://t.co/OZ7Ca5YfIc pic.twitter.com/sXpiDccXwP
US Fed's Yellen repeats that interest-rate hike could come 'relatively soon'. Fed Fund's indicating a 90% chance of a Dec rate hike.
1.35pm GMT
Janet Yellen has resisted any temptation to comment about the US election in her testimony to Congress (boo hiss).
The closest she gets is a familiar warning about economic uncertainty:
Of course, the economic outlook is inherently uncertain, and, as always, the appropriate path for the federal funds rate will change in response to changes to the outlook and associated risks.
1.22pm GMT
Janet Yellen will also tell Congress that America's economy has made "further progress this year".
She begins her testimony by pointing out that the unemployment rate is now just 4.9%, with around 180,000 new jobs created each month in 2016.
Further employment gains may well help support labor force participation as well as wage gains; indeed, there are some signs that the pace of wage growth has stepped up recently.
After rising at an annual rate of just 1 percent in the first half of this year, inflation-adjusted gross domestic product is estimated to have increased nearly 3 percent in the third quarter. In part, the pickup reflected some rebuilding of inventories and a surge in soybean exports.
In addition, consumer spending has continued to post moderate gains, supported by solid growth in real disposable income, upbeat consumer confidence, low borrowing rates, and the ongoing effects of earlier increases in household wealth
1.16pm GMT
Janet Yellen is pretty clear that the Fed is close to raising rates:
At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee's objectives.
BREAKING: Janet Yellen says Fed rate hike could come "relatively soon" https://t.co/vEHHqfgdB7 pic.twitter.com/QOah76QrXP
1.12pm GMT
Breaking: Federal Reserve chair Janet Yellen has warned that it would be a mistake to leave US interest rates unchanged for too long.
It's a hint that borrowing costs could be raised soon, possibly at the Fed's next meeting in December.
Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.
The FOMC continues to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain maximum employment and price stability.
12.36pm GMT
The Bank of England is actually closer to a model modern central bank than either the US Federal Reserve or the European Central Bank, according to today's report anyway.
Here's the scorecard:
The FSOC...provides a forum for different regulators to challenge the Fed's views of risks to financial stability and, because it is chaired by the Treasury, it can confer important political legitimacy for contentious regulatory decisions.
11.56am GMT
Today's report argues that central banks and governments need to work more closely when interest rates have reached rock bottom (the zero lower bound).
That could includes showering the economy with 'helicopter money', if government spending cuts have created a low-inflation, low-growth quagmire.
Many economists have argued that recent austerity has not improved fiscal positions much, and may even have worsened them.
Rather, there is reason to believe that fiscal policy is structurally prone to undermine monetary policy at the zero lower bound. Indeed, many governments also responded with austerity in the Depression, the last time that western economies fell into a liquidity trap.
11.24am GMT
So much for my prediction that Ed Balls wouldn't be able to perform any dance moves on the radio....
Yes, this is a video of @edballs of @bbcstrictly fame teaching @bbcnickrobinson Gangnam style during the eight o'clock news #r4today pic.twitter.com/yptk5Qf1uj
11.22am GMT
Ed Balls' research on central banks is getting some attention this morning, thanks to the Strictly effect.
Political journalist Iain Martin reckons Balls made a good argument on the Today Programme this morning (highlights are here)
Another storming performance from @edballs - calls for more political accountability for BoE. Seven!!! Maybe even eight.
@DuncanWeldon @edballs The paper is interesting. The headlines, however, are misleading. They imply an attack on independence.
@BBCr4today @bbcnickrobinson @edballs We need to reduce power of @bankofengland & @hmtreasury - should be servants of Govt, not masters.
@guardiannews @edballs it's independence is the only reason why we can borrow so cheap twinkle toes.
10.59am GMT
Bloomberg have also covered the Balls paper, and point out that other experts are calling for central bank reforms:
Former U.S. Treasury Secretary Larry Summers has said that central bank independence, conceived as a way to stop governments from stoking inflation with measures designed to gain electoral support, is an outdated concept.
Governments and monetary policy makers need to cooperate to ensure the maximum effectiveness of stimulus in a world where demand is chronically deficient, he said in a speech at the International Monetary Fund this month.
10.26am GMT
Here's my colleague, Angela Monaghan, on Ed Balls' central banking paper:
The Bank of England has become too powerful in the aftermath of the financial crisis and must be reined in, according to the former shadow chancellor Ed Balls.
"I think the case for independent central banks is as strong as it's ever been. At a time of economic uncertainty but also great political risk, we need the [US] Fed and the Bank of England to play these roles. But the reforms we've seen over the last few years have hugely concentrated power in central banks. I think it's unfinished business...
Ed Balls: Bank of England's independence should be reined in https://t.co/NHA65Eq3cg
9.52am GMT
Ed Balls is effectively criticising some of the reforms made by his old rival George Osborne.
In 1997, the new Labour government handed control of interest rates to the Bank of England, under a 'tripartite' system where financial stability was also handled by the Financial Services Authority and the Treasury.
There's history here: when Labour made Bank independent it shared financial stability job with Treasury, FSA. (1/3) https://t.co/zMxytZ43xg
That system was deemed to have failed in the '08 crisis - no one knew who was "driving the bus" (2/3)
So Osborne reforms concentrated more power in hands of Bank, and #glitterballs, author of Labour's plans, thinks it's gone too far. (3/3)
9.34am GMT
Newsflash: UK retail sales jumped by 1.9% during October, the biggest monthly rise since July.
On an annual basis, consumers bought 7.4% more stuff than in October 2015, which is the biggest rise since April 2002.
9.26am GMT
European credit strategist Tomas Hirst argues that governments have caused the furore over central bank independence, by failing to use their tax and spending powers better:
Easier way of saying this is that fiscal powers need to stop passing the buck to CBs. Independence debate is really about fiscal failure. https://t.co/afZ2Z3uqdo
8.58am GMT
Ed Balls is also arguing that central banks should welcome more political accountability, as it would protect them in the next financial crisis.
The former shadow chancellor told the Today programme that:
If in the end when things start to go wrong, everything is concentrated in the Bank of England only, that is politically quite dangerous for the Bank.
So, in order to protect independence, the Bank needs more political support and accountability.
It's very worrying seeing Mark Carney being attacked.
8.41am GMT
Former shadow chancellor Ed Balls has told the Today Programme that central bank independence is 'unfinished' business -- and that no country has the perfect central bank set-up yet.
He pointed out that central bankers have played a vital role since the financial crisis struck; but now have an awful lot of power:
Over the last five years, we have hugely relied on central banks on both sides of the Atlantic to sustain growth, to keep our economies growing, and yet at the same time they're under big attack. In Congress, the Fed being heavily criticised. We've seen not just MPs attacking Mark Carney and the Bank of England, but even our Prime Minister a few weeks ago slapping Mark Carney down.
I think the case for independent central banks is as strong as it's ever been. At a time of economic uncertainty but also great political risk, we need the Fed and the Bank of England to play these roles and we don't want them to be politically criticised, but, the reforms we've seen over the last few years have hugely concentrated power in central banks.
It's good to have a financial policy committee making decisions about our whole financial system, but frankly, there's not sufficient accountability, there's not a clear target, they're making [decisions] that are quite distributionally politically sensitive.
If things go wrong, then politicians would have to step in and say there's a gap in the system. What we need is a systemic risk body chaired by the chancellor, which is overseeing the whole system and setting a mandate for the Bank of England and also there if a crisis starts to build, that's a gap we need to fill.
The low interest rate policy over the last few years is the only thing that has stopped our economy slipping back into depression. They've been trying to meet a target for low inflation, they've been undershooting because of the deflation forces in the economy. They've been doing their job. We actually say, what we need to have is a better dialogue between central banks and governments. If government had done a bit more work to support the economy through infrastructure spending, that would have made it easier for the Bank of England.
8.30am GMT
Ed Balls's paper on central bank independence comes at a good time, and not just because he's still hanging on in Strictly.
Disenchantment with central bankers has been growing steadily; as opponents question whether keeping interest rates close to zero and pumping up asset prices was actually working.
Concerns about central bank policies and over-reach span the political horizon. They range from president-elect Donald Trump's accusations that the Fed kept short-term interest rates low at the behest of the Obama administration, Brexiters' complaints that the BoE's interventions in the debate over leaving the EU were "beneath the dignity" of the venerable institution and German politicians' rage at the European Central Bank's actions.
Most complaints in the US have come from the political right. But in Britain there have been as many from the left. In setting up a review of the BoE, the leadership of the Labour party has questioned whether the central bank should be forced to fund infrastructure projects.
Admit it, #Strictly fans, this is the @edballs story you *really* want to read #SCD https://t.co/PudLcVTPsJ via @FT
8.12am GMT
Ed Balls is now presenting his paper on the Today programme.
He's arguing that central bank independence must be maintained, but with additional political accountability.
"I think the case for independent central banks is as strong as it has ever been," says @edballs after publication of his paper #r4today
. @edballs says Theresa May "slapped down" Governor of the Bank of England. Argues banks shd be independent but need more accountability
"Low interest rate policy is only thing that has stopped economy moving into depression." Don't then attack Bank for dong that @edballs
8.00am GMT
After months of delighting, or horrifying, the nation with his dancing skills, Ed Balls has sashayed back to the world of economics by arguing that the independence of the Bank of England should be curbed.
Absolutist interpretations of complete central bank independence may both undermine the pursuit of new central bank objectives and fray the political support that currently exists for central bank autonomy in their core monetary policy function.
Indeed, popular discontent towards central banks is growing in the US, UK and the euro-zone. We need a more nuanced approach to central bank independence in this brave new world.
The @edballs paper on central bank independence is very good - https://t.co/Cm9JazQmUl
After the centralisation of prudential regulation - both of the micro and macro variety - and systemic risk monitoring inside the Bank of England, there is a danger that the UK money-credit constitution is too concentrated in the central bank, leading to the possibility of groupthink, a lack of oversight and ultimately risks to central bank independence.
A body, chaired by the Chancellor of the Exchequer, which provides a forum for different regulators to share information, opinions and challenge the central bank perspective.
The recent US election, and the resulting Republican control of Congress as well as the White House, are widely expected to lead to further criticism of the power and independence of the Federal Reserve. Meanwhile, in recent weeks we have seen increasingly open political attacks on Bank of England Governor Mark Carney from Brexit supporters.
But we are clear that this is no time to throw the baby out with the bathwater....
Dance star branches out with surprising views on central bank independence. https://t.co/sVVKXUSFW8
7.30am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we'll be watching the UK retail sales figures, at 9.30am, to see if British consumers are still shrugging off the Brexit vote.
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