JEFFERSON CITY, Mo. (KMIZ) — With Attorney General Andrew Bailey set to head to Washington, D.C., this September to work for the FBI after being tapped by Attorney General Pam Bondi and FBI Director Kash Patel, Gov. Mike Kehoe has appointed a new attorney general.
Kehoe said Tuesday that Catherine Hanaway will take over Sept. 8. She will be the first female attorney general.
Hanaway was a Republican House Speaker from 2003-2005, the first and only woman to hold the post.
Bailey, a Republican, previously challenged COVID-19 masking in schools as well as gender-affirming care such as puberty blockers. Bailey also created the anti-human trafficking task force and was a strong supporter of pro-law enforcement legislation.
Bailey also has a record as a state official loyal to President Donald Trump, supporting administration policies with dozens of legal filings since he took office in January 2023. Former Gov. Mike Parson appointed Bailey in 2022, and he was elected to AG in 2024.
Democratic House Minority Leader Rep. Ashley Aune said in a statement Monday that the House Minority Caucus hopes Kehoe will appoint a competent attorney general.”
“Bailey’s departure gives the governor an opportunity to appoint a competent and
professional attorney general who will defend the rights of all Missourians instead of wasting
taxpayer money on frivolous culture war lawsuits that regularly get laughed out of court, Aune said.
Hanaway works for the law firm Husch Blackwell, representing white collar clients in areas such as lobbying law, fraud and money laundering. One of her clients is the Grain Belt Express, a renewable energy project that Bailey staunchly opposed.
Kehoe, in making the announcement, said Hanaway was a champion for conservative Missouri values.
A federal judge in Missouri put a temporary hold on President Joe Biden’s latest student loan cancellation plan on Thursday, slamming the door on hope it would move forward after another judge allowed a pause to expire.Related video above: Delinquency reports for student loan borrowers restart in OctoberJust as it briefly appeared the Biden administration would have a window to push its plan forward, U.S. District Judge Matthew Schelp in Missouri granted an injunction blocking any widespread cancellation.Six Republican-led states requested the injunction hours earlier, after a federal judge in Georgia decided not to extend a separate order blocking the plan.The states, led by Missouri’s attorney general, asked Schelp to act fast, saying the Education Department could “unlawfully mass cancel up to hundreds of billions of dollars in student loans as soon as Monday.” Schelp called it an easy decision.Biden’s plan has been on hold since September, when the states filed a lawsuit in Georgia arguing Biden had overstepped his legal authority. But on Thursday, U.S. District Court Judge J. Randal Hall decided not to extend the pause after finding that Georgia doesn’t have the legal right to sue in this case.Hall dismissed Georgia from the case and transferred it to Missouri, which Hall said has “clear standing” to challenge Biden’s plan.Proponents of student loan cancellation briefly had a glimmer of hope the plan would move forward — Hall’s order was set to expire after Thursday, allowing the Education Department to finalize the rule. But Schelp’s order put the question to rest.“This is yet another win for the American people,” Missouri Attorney General Andrew Bailey said in a statement. “The Court rightfully recognized Joe Biden and Kamala Harris cannot saddle working Americans with Ivy League debt.”Biden’s plan would cancel at least some student loan debt for an estimated 30 million borrowers.It would erase up to $20,000 in interest for those who have seen their original balances increase because of runaway interest. It would also provide relief to those who have been repaying their loans for 20 or 25 years, and those who went to college programs that leave graduates with high debt compared to their incomes.Video below: Older Borrowers Struggle with High Student Loan DebtBiden told the Education Department to pursue cancellation through a federal rulemaking process after the Supreme Court rejected an earlier plan using a different legal justification. That plan would have eliminated up to $20,000 for 43 million Americans.The Supreme Court rejected Biden’s first proposal in a case brought by Republican states including Missouri.In his order Wednesday, Hall said Georgia failed to prove it was significantly harmed by Biden’s new plan. He rejected an argument that the policy would hurt the state’s income tax revenue, but he found that Missouri has a strong case.Missouri is suing on behalf of MOHELA, a student loan servicer that was created by the state and is hired by the federal government to help collect student loans. In the suit, Missouri argues that cancellation would hurt MOHELA’s revenue because it’s paid based on the number of borrowers it serves.In their lawsuit, the Republican states argue that the Education Department had quietly been telling loan servicers to prepare for loan cancellation as early as Sept. 9, bypassing a typical 60-day waiting period for new federal rules to take effect.Also joining the suit are Alabama, Arkansas, Florida, North Dakota and Ohio.
WASHINGTON —
A federal judge in Missouri put a temporary hold on President Joe Biden’s latest student loan cancellation plan on Thursday, slamming the door on hope it would move forward after another judge allowed a pause to expire.
Related video above: Delinquency reports for student loan borrowers restart in October
Just as it briefly appeared the Biden administration would have a window to push its plan forward, U.S. District Judge Matthew Schelp in Missouri granted an injunction blocking any widespread cancellation.
Six Republican-led states requested the injunction hours earlier, after a federal judge in Georgia decided not to extend a separate order blocking the plan.
The states, led by Missouri’s attorney general, asked Schelp to act fast, saying the Education Department could “unlawfully mass cancel up to hundreds of billions of dollars in student loans as soon as Monday.” Schelp called it an easy decision.
Biden’s plan has been on hold since September, when the states filed a lawsuit in Georgia arguing Biden had overstepped his legal authority. But on Thursday, U.S. District Court Judge J. Randal Hall decided not to extend the pause after finding that Georgia doesn’t have the legal right to sue in this case.
Hall dismissed Georgia from the case and transferred it to Missouri, which Hall said has “clear standing” to challenge Biden’s plan.
Proponents of student loan cancellation briefly had a glimmer of hope the plan would move forward — Hall’s order was set to expire after Thursday, allowing the Education Department to finalize the rule. But Schelp’s order put the question to rest.
“This is yet another win for the American people,” Missouri Attorney General Andrew Bailey said in a statement. “The Court rightfully recognized Joe Biden and Kamala Harris cannot saddle working Americans with Ivy League debt.”
Biden’s plan would cancel at least some student loan debt for an estimated 30 million borrowers.
It would erase up to $20,000 in interest for those who have seen their original balances increase because of runaway interest. It would also provide relief to those who have been repaying their loans for 20 or 25 years, and those who went to college programs that leave graduates with high debt compared to their incomes.
Video below: Older Borrowers Struggle with High Student Loan Debt
Biden told the Education Department to pursue cancellation through a federal rulemaking process after the Supreme Court rejected an earlier plan using a different legal justification. That plan would have eliminated up to $20,000 for 43 million Americans.
The Supreme Court rejected Biden’s first proposal in a case brought by Republican states including Missouri.
In his order Wednesday, Hall said Georgia failed to prove it was significantly harmed by Biden’s new plan. He rejected an argument that the policy would hurt the state’s income tax revenue, but he found that Missouri has a strong case.
Missouri is suing on behalf of MOHELA, a student loan servicer that was created by the state and is hired by the federal government to help collect student loans. In the suit, Missouri argues that cancellation would hurt MOHELA’s revenue because it’s paid based on the number of borrowers it serves.
In their lawsuit, the Republican states argue that the Education Department had quietly been telling loan servicers to prepare for loan cancellation as early as Sept. 9, bypassing a typical 60-day waiting period for new federal rules to take effect.
Also joining the suit are Alabama, Arkansas, Florida, North Dakota and Ohio.
The exterior of the Bank of England in the City of London, United Kingdom.
Mike Kemp | In Pictures | Getty Images
LONDON — The Bank of England on Friday announced a “once in a generation” overhaul of its inflation forecasting following a long-awaited review by former Federal Reserve Chair Ben Bernanke.
The review — initiated after criticism of the central bank’s policymaking amid spiraling inflation — sets out 12 recommendations which BOE Governor Andrew Bailey said the bank was committed to implementing.
Bailey told CNBC it had been “invaluable” to compare and contrast the U.S. policy perspective with its own.
“This is a once in a generation opportunity to update our forecasting, and ensure it is fit for our more uncertain world,” Bailey said.
Bernanke’s recommendations are organized into three key areas: improving the bank’s forecasting infrastructure, supporting decision-making within the Monetary Policy Committee (MPC) and better communicating economic risks to the public.
The provisions include scrapping the bank’s long-held “fan chart” forecasting system and introducing a revamped forecast framework.
The fan chart — which shows a range of possible future data points — has long been used by the bank to present the probability distribution that forms the basis of its inflation forecasts. The model has faced heavy criticism over recent years for failing to accurately keep track of inflationary pressures, and the review concluded that fan charts had “outlived their usefulness” and “should be eliminated.”
Bernanke stopped short of recommending Fed-style “dot plot” forecasting, which was introduced in the U.S.after the global financial crisis to allow each member to chart their course of policy stance, inflation, real GDP and employment. But he suggested a new model which better reflects the differing views of committee members and how inflation expectations can become “de-anchored.”
He also noted that the BOE currently relies more heavily on a central forecast than do other central banks, and said that its analysis should be supplemented with a wider range of alternative scenarios that “help the public better understand the reasons for the policy choice.” Such scenarios may include the effects of different policy choices, or unexpected global shocks.
The suggestion came as part of a wider set of recommendations on how the bank can improve its communications with the public, simplify its policy statement and reduce repetitiveness. The review also said that the bank should move ahead with the current modernization of the software it uses to manage and manipulate data as a “high priority.”
The Bernanke review was launched last summer to assess the bank’s struggles to accurately project the huge global spike in inflation after Russia’s invasion of Ukraine.
The bank was widely criticized for being too slow to hike interest rates, meaning it subsequently had to raise its main bank rate to a 15-year high of 5.25%.
With inflation now falling faster than the MPC had anticipated, some economists have contended that the bank is committing the same mistake in the opposite direction, bycutting rates too slowly.
Bernanke added that his role chairing the Fed during the global financial crisis highlighted the critical role of monetary policy on the real economy, but added that the review made “no judgment” of the BOE’s recent decision-making.
“The effects of the financial sector on the economy go beyond interest rates. Credibility is important. Risk-taking is important,” he told CNBC.
He also said that the difficulties in forecasting were not unique to the BOE, but added that he hoped the bank would draw appropriate lessons from the experience.
The review recommended that the bank take a phased approach to implementing the new measures, starting with improving its forecasting infrastructure. It should then “cautiously” move on to adopting changes to its policymaking and communications, it said.
Incoming BOE Deputy Governor Clare Lombardelli has been charged with leading the implementation of these recommendations when she takes her seat in July. The bank said it will provide an update on the proposed changes by the end of the year.
— CNBC’s Elliott Smith contributed to this article.
Bank of England Governor Andrew Bailey said Thursday that the ongoing Israel-Hamas war poses a potential risk to the bank’s efforts to bring down inflation.
Bailey told CNBC that aside from the immense human tragedy brought about by the now almost four-week conflict, the possible knock-on effects for energy markets were significant, risking a resurgence in price rises.
“So far, I would say, we haven’t seen a marked increase in energy prices, and that’s obviously good,” Bailey told CNBC’s Joumanna Bercetche.
“But it is a risk. It obviously is a risk going forward,” he said.
Oil prices have fluctuated over recent weeks as investors have eyed developments in the Middle East amid concerns that the fighting could spill over into a wider conflict in the energy-rich region.
The World Bank warned in a quarterly update Monday that crude oil prices could rise to more than $150 a barrel if the conflict escalates. As of Thursday 3:30 p.m. London time, Brent crude was trading up just over 1% at $85.65 a barrel.
Bailey said that, should energy prices push significantly higher, the central bank’s response would depend on the wider economic circumstances and how persistent policymakers expect the price rises to be.
The Bank of England has been steadfast in its efforts to bring down inflation, only ending its run of 14 consecutive interest rate hikes in September after data showed inflation running below expectations.
On Thursday, the bank held interest rates steady once again but said that monetary policy would need to remain tight for an “extended period of time.”
The Monetary Policy Committee voted 6-3 in favor of keeping the main bank rate at 5.25%, with three members preferring another 25 basis point hike to 5.5%.
“We’re going to have to hold them [interest rates] in restrictive territory for some time,” Bailey said.
“The risks are still on the upside,” he continued. “It’s really just too soon to start talking about cutting interest rates.”
U.K. inflation came in at 6.7% in September, slightly ahead of expectations and unchanged from the previous month.
The bank now expects the consumer price index to average around 4.75% in the fourth quarter of 2023 before dropping to around 4.5% in the first quarter of next year and 3.75% in the second quarter of 2024.
Employees prepare orders at ‘Wok to Walk’ restaurant in the Soho district in London, UK, on Friday, Sept. 30, 2022. UK retailers are facing a mortgage time bomb, with rising interest rates set to have twice the impact on consumer finances as the recent surge in utility bills, according to a Deutsche Bank analyst. Photographer: Jose Sarmento Matos/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
For workers struggling with the soaring cost of living, the idea that rising wages are concerning has always seemed laughable. But they had some policymakers and economists worried last year.
Minutes from the U.S. Federal Reserve’s March 2022 meeting showed unease that “substantial” wage increases would fuel higher prices.
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In the U.K. the discussion was even more blunt, with Treasury officials publicly saying there was an inflationary risk from workers expecting wages to keep up with price rises. Bank of England Governor Andrew Bailey even went so far as to call for “restraint in pay bargaining” (and Germany’s finance minister made a similar plea).
The experts were worried about a so-called wage-price spiral. This occurs when workers expect inflation to keep rising, so demand — and achieve — higher salaries to keep up with price rises. Businesses then raise the prices of goods and services to cover higher labor costs, at the same time as workers have more disposable income to increase demand. This creates an inflationary loop, or in the language of economists, “second-round effects.”
This is argued to have happened in the 1970s, when inflation hit 23% in the U.K. and 14% in the U.S. in 1980.
But while concerns this time around aren’t totally gone, what’s being discussed more frequently now is the fact that a wage-price spiral has not occurred in the 18 months or so that inflation has been running red-hot in much of the world.
The European Central Bank’s March minutes, released Thursday, say wages have “had only a limited influence on inflation over the past two years.” Treasury Secretary Janet Yellen has also said she doesn’t see a wage-price spiral in the U.S.
And at the International Monetary Fund’s spring meetings session, the group’s chief economist, Pierre-Olivier Gourinchas, told CNBC it’s not something he is worried about in relation to the global economic growth outlook.
“What we’ve seen in the last year is prices rising very rapidly, but wages have not increased nearly as much, and that’s why we have a cost of living crisis,” Gourinchas said, after noting that core inflation remained high in many countries and in some cases was increasing.
“We should expect wages to catch up eventually and people’s real income to recover,” he said. Real income refers to wages adjusted for inflation, reflecting changes in purchasing power.
But the increase doesn’t present a risk because “the corporate sector has been sitting on pretty comfortable margins,” Gourinchas continued. Businesses’ revenues “have risen faster than costs, and so margins have room to absorb rising labor costs.”
The ECB’s March minutes say their analysis found the “increase in [corporate] profits had been significantly more dynamic than that in wages.”
There has also been increased discussion about how those corporate profits are contributing to inflation.
In a recent note, economists at ING looked at Germany, where inflation is increasingly a demand-side issue. While cautioning that so-called “greedflation” cannot be proven and there are variations by sector, they wrote that there are signs companies have been hiking prices ahead of the rise in their input costs, and that “from the second half of 2021 onward, a significant share of the increase in prices can be explained by higher corporate profits.” They call this a profit-price spiral.
The president of the Netherlands’ central bank, Klaas Knot, in December urged companies to raise wages for workers and said that 5%-7% pay rises in sectors that could afford it, combined with government energy bill support, would help balance the effects of inflation rather than fueling it.
Kristin Makszin, assistant professor of political economy at Leiden University, agrees. She told CNBC that while both wages and prices are rising, we can’t ignore external factors driving up wages (including the tight labor market) and prices (such as supply shortages).
“Since the Global Financial Crisis, wages have not recovered,” she said. In the U.S. for example, an annual wage increase of around 3.5% would be considered positive, accounting for 2% inflation and 1.5% productivity growth, but it has lagged behind this, Makszin said.
“It’s not that a wage-price spiral couldn’t happen, but it’s low on the list of concerns versus the factors we know are problematic,” she said. These include a potential downward low-wage-productivity spiral — when wages aren’t sufficient to get people back into the workforce or areas where they are needed, dampening productivity and therefore economic growth.
A key mechanism that would fuel a wage-price spiral, workers’ bargaining power, has been weakened because unions have less power than in the 1970s, Makszin added.
But with a tight labor market, people can just refuse to work — and that’s an area policymakers need to address, she said. “In sectors like U.S. hospitality, wages have increased dramatically, but that was correcting for many decades of low-paid work when labor was replaceable … it could be viewed as compensating for long-term wage stagnation,” she continued.
The country that is the “most vulnerable developed market economy” when it comes to a wage-price spiral is the U.K., according to Alberto Gallo, chief investment officer at Andromeda Capital Management.
Figures published this week showed U.K. wage growth slowed less than expected in the three months to March 2023, rising by 6.9% in the private sector and 5.3% in the public sector. Meanwhile, inflation remains above 10%, ahead of 7.8% in Germany and 5.3% in the U.S.
The risk, Gallo said, is from a mix of structural factors that contribute to stagflation. While low- and middle-income households are struggling with the soaring cost of food and other basics and higher rates are eroding people’s purchasing power in a highly-leveraged housing market, the central bank is actually keeping real rates — interest rates adjusted for inflation — at the most negative level in developed markets.
Meanwhile, the British pound is weak — and 50% of the country’s goods are imported — and foreign labor has been restrained by Brexit.
“We’re coming from a period where real wages have been stagnant for a long time and high inflation is finally pushing workers into strong renegotiations,” Gallo said. “But if you let interest rates go down against inflation and in effect weaken, you have an inflation spiral. Core goods [inflation] has come down but core services are not coming down,” Gallo said.
Richard Portes, professor of economics at London Business School, told CNBC there is “no serious risk” of a wage-price spiral in the U.K., U.S., or major European countries, however. He also cited reduced union power in the private sector as a notable change from the 1970s.
“If you look at core inflation in the U.S., rentals, housing, have been driving that. That’s got nothing to do with wages — with rentals, it’s more sensitive to interest rate rises,” he added.
There is evidence — including from the IMF — that wage-price spirals aren’t common. The IMF research found very few examples in advanced economies since the 1960s of “sustained acceleration” in wages and prices, with both instead stabilizing, keeping real wage growth “broadly unchanged.” As with so much in economics, the idea that wage-price spirals even exist has also been challenged.
For Kamil Kovar, an economist at Moody’s Analytics, the scenario was always seen as a risk, not necessarily likely. But he, too, said that as time progresses it has become clear that it is not happening.
Wages are likely to increase fairly rapidly for Europe, but there’s “so much scope for wages to catch up with prices, to get to a spiral situation we would need something totally different to happen,” he said. The ECB expects real wage growth of around 5% this year.
Real wages in Europe are so much lower than before the pandemic they could increase another 10% without going into a “danger zone,” Kovar said; while in the U.S. they are roughly equal but exiting the risky zone.
When comparing the current situation to the 1970s, Kovar said there were some similarities such as an energy shock; back then it was in oil, whereas this time it is bigger and broader, impacting electricity and gas too. There has also been a more rapid drop in energy prices as this shock has subsided.
And again, he noted the ongoing growth in corporate profits and the absence of powerful unions as yet more factors for why this time it’s different.
“It’s an example of how we are slaves to our historical parallels,” he said. “We potentially overreact even if the underlying situation is different.”
LONDON — Joe Biden is not someone known for his subtlety.
His gaffe-prone nature — which saw him last week confuse the New Zealand rugby team with British forces from the Irish War of Independence — leaves little in the way of nuance.
But he is also a sentimental man from a long gone era of Washington, who specializes in a type of homespun, aw-shucks affability that would be seen as naff in a younger president.
His lack of subtlety was on show in Belfast last week as he issued a thinly veiled ultimatum to the Democratic Unionist Party (DUP) — return to Northern Ireland’s power-sharing arrangements or risk losing billions of dollars in U.S. business investment.
The DUP — a unionist party that does not take kindly to lectures from American presidents — is refusing to sit in Stormont, the Northern Ireland Assembly, due to its anger with the post-Brexit Northern Ireland protocol, which has created trade friction between the region and the rest of the U.K.
The DUP is also refusing to support the U.K.-EU Windsor Framework, which aims to fix the economic problems created by the protocol, despite hopes it would see the party reconvene the Northern Irish Assembly.
The president on Wednesday urged Northern Irish leaders to “unleash this incredible economic opportunity, which is just beginning.”
However, American business groups paint a far more complex and nuanced view of future foreign investment into Northern Ireland than offered up by Biden.
Biden told a Belfast crowd on Wednesday there were “scores of major American corporations wanting to come here” to invest, but that a suspended Stormont was acting as a block on that activity.
One U.S. business figure, who spoke on condition of anonymity, said Biden’s flighty rhetoric was “exaggerated” and that many businesses would be looking beyond the state of the regional assembly to make their investment decisions.
The president spoke as if Ulster would be rewarded with floods of American greenbacks if the DUP reverses its intransigence, predicting that Northern Ireland’s gross domestic product (GDP) would soon be triple its 1998 level. Its GDP is currently around double the size of when the Good Friday Agreement was struck in 1998.
Emanuel Adam, executive director of BritishAmerican Business, said this sounded like a “magic figure” unless Biden “knows something we don’t know about.”
DUP MP Ian Paisley Jr. told POLITICO that U.S. politicians for “too long” have “promised some economic El Dorado or bonanza if you only do what we say politically … but that bonanza has never arrived and people are not naive enough here to believe it ever will.”
“A presidential visit is always welcome, but the glitter on top is not an economic driver,” he said.
Joe Biden addresses a crowd of thousands on April 14, 2023 in Ballina, Ireland | Charles McQuillan/Getty Images
Facing both ways
The British government is hoping the Windsor Framework will ease economic tensions in Northern Ireland and create politically stable conditions for inward foreign direct investment.
The framework removes many checks on goods going from Great Britain to Northern Ireland and has begun to slowly create a more collaborative relationship between London and Brussels on a number of fronts — two elements which have been warmly welcomed across the Atlantic.
Prime Minister Rishi Sunak has said Northern Ireland is in a “special” position of having access to the EU’s single market, to avoid a hard border with the Republic of Ireland, and the U.K.’s internal market.
“That’s like the world’s most exciting economic zone,” Sunak said in February.
Jake Colvin, head of Washington’s National Foreign Trade Council business group, said U.S. firms wanted to see “confidence that the frictions over the protocol have indeed been resolved.”
“Businesses will look to mechanisms like the Windsor Framework to provide stability,” he said.
Marjorie Chorlins, senior vice president for Europe at the U.S. Chamber of Commerce, said the Windsor Framework was “very important” for U.S. businesses and that “certainty about the relationship between the U.K. and the EU is critical.”
She said a reconvened Stormont would mean more legislative stability on issues like skills and health care, but added that there were a whole range of other broader U.K. wide economic factors that will play a major part in investment decisions.
This is particularly salient in a week where official figures showed the U.K.’s GDP flatlining and predictions that Britain will be the worst economic performer in the G20 this year.
“We want to see a return to robust growth and prosperity for the U.K. broadly and are eager to work with government at all levels,” Chorlins said.
“Political and economic instability in the U.K. has been a challenge for businesses of all sizes.”
Prime Minister Rishi Sunak has said Northern Ireland is in a “special” position of having access to the EU’s single market | Pool photo by Paul Faith/Getty Images
Her words underline just how much global reputational damage last year’s carousel of prime ministers caused for the U.K., with Bank of England Governor Andrew Bailey recently warning of a “hangover effect” from Liz Truss’ premiership and the broader Westminster psychodrama of 2022.
America’s Northern Ireland envoy Joe Kennedy, grandson of Robert Kennedy, accompanied the president last week and has been charged with drumming up U.S. corporate interest in Northern Ireland.
Kennedy said Northern Ireland is already “the No. 1 foreign investment location for proximity and market access.”
Northern Ireland has been home to £1.5 billion of American investment in the past decade and had the second-most FDI projects per capita out of all U.K. regions in 2021.
Claire Hanna, Westminster MP for the nationalist SDLP, believes reconvening Stormont would “signal a seriousness that there isn’t going to be anymore mucking around.”
“It’s also about the signal that the restoration of Stormont sends — that these are the accepted trading arrangements,” she said.
Hanna says the DUP’s willingness to “demonize the two biggest trading blocs in the world — the U.S. and EU” — was damaging to the country’s future economic prospects.
‘The money goes south’
At a more practical level, Biden’s ultimatum appears to carry zero weight with DUP representatives.
DUP leader Jeffrey Donaldson made it clear last week that he was unmoved by Biden’s economic proclamations and gave no guarantee his party would sit in the regional assembly in the foreseeable future.
“President Biden is offering the hope of further American investment, which we always welcome,” Donaldson told POLITICO.
“But fundamental to the success of our economy is our ability to trade within our biggest market, which is of course the United Kingdom.”
A DUP official said U.S. governments had been promising extra American billions in exchange “for selling out to Sinn Féin and Dublin” since the 1990s and “when America talks about corporate investment, we get the crumbs and that investment really all ends up in the Republic [of Ireland].”
“President Biden is offering the hope of further American investment, which we always welcome,” Donaldson said | Behal/Irish Government via Getty Images
“The Americans talk big, but the money goes south,” the DUP official said.
This underscores the stark reality that challenges Northern Ireland any time it pitches for U.S. investment — the competing proposition offered by its southern neighbor with its internationally low 12.5 percent rate on corporate profits.
Emanuel Adam with BritishAmerican Business said there was a noticeable feeling in Washington that firms want to do business in Dublin.
“When [Irish Prime Minister] Leo Varadkar and his team were here recently, I could tell how confident the Irish are these days,” he said. “There are not as many questions for them as there are around the U.K.”
Biden’s economic ultimatum looks toothless from the DUP’s perspective and its resonance may be as short-lived as his trip to Belfast itself.
This story has been updatedto correct a historical reference.
Asian share markets slipped on Monday following another drubbing for Wall Street as investors brace for further drastic tightening in global financial conditions, with all the risks of recession that brings.
Concerns about financial stability added to the corrosive mix with all eyes on UK bonds now that the Bank of England’s (BoE’s) emergency buying spree is over.
Prime Minister Liz Truss decision to fire her finance minister might help reassure investors, but her own fate is unclear with media reporting Tory lawmakers will try and replace her this week.
BoE Governor Andrew Bailey warned over the weekend that rates might have to rise by more than thought just a couple of months ago.
“The BoE was doing emergency bond-buying that’s technically identical to QE with one hand, while furiously raising the policy rate with the other,” said analysts at ANZ in a note.
“Monday’s market action will provide a test, not only for the survival of Truss’ low-tax vision, but also her political future.”
Sterling was quoted up 0.6% at $1.1240, but trading was sparse with little liquidity in Asia.
In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.5% and back toward last week’s 2-1/2 year low. Japan’s Nikkei shed 1.1% and South Korea 1.5%.
S&P 500 futures ESc1 edged up 0.5% after Friday’s sharp retreat, while Nasdaq futures NQc1 added 0.4%.
While the S&P is an eye-watering 25% off its peak, BofA economist Jared Woodard warned the slide was not over given the world was transitioning from two decades of 2% inflation to a time of something more like 5% inflation.
“$70 trillion of ‘new’ tech, growth, and government bond assets priced for a 2% world are vulnerable to these secular shifts as ‘old’ industries like energy and materials surge, reversing decades of under-investment,” he wrote in a note.
“Rotating out of 60/40 proxies and buying what is scarce – power, food, energy – is the best way for investors to diversify.”
INTERVENTION WATCH
A red-hot US inflation report last week has markets fully expecting the Federal Reserve to hike rates by 75 basis points next month, and likely by the same again in December.
A host of Fed policymakers are speaking this week, so there will be plenty of opportunity for hawkish headlines. The earnings season also continues with Tesla Inc, Netflix and Johnson & Johnson reporting, among others.
In China, the Communist Party Congress is expected to grant a third term to President Xi Jinping, while there could be a reshuffle of top economic roles as incumbents are near retirement age or term-limits. Read full story
In currency markets, the dollar remains king as investors price in U.S. rates peaking around 5%.
The yen has been particularly hard hit as the Bank of Japan sticks to its super-easy policy, while the authorities refrained from intervention last week even as the dollar sped past the 148.00 level to 32-year peaks.
Early Monday, the dollar was up at 148.62 yen and heading for the next target at 150.00.
The euro was holding at $0.9733, having put in a steadier performance last week, while the U.S. dollar index eased a fraction to 113.20.
The rise of the dollar and global bond yields has been a drag for gold, which was stuck at $1,646 an ounce.
Oil prices were trying to bounce after sinking more than 6% last week as fears of a demand slowdown outweighed OPEC’s plans to cut output.
Brent LCOc1 firmed 64 cents to $92.27 a barrel, while U.S. crude CLc1 rose 55 cents to $86.16 per barrel.
As Britain’s central bank boss, tasked with managing inflation and setting interest rates, Andrew Bailey likes targets. Now he is one.
Markets are dumping U.K. assets amid chaotic policymaking from Liz Truss’ new government — but Bailey’s rocky stewardship of the Bank of England is getting a growing share of the blame. His harshest critics include some of Truss’ most senior Conservative Party colleagues.
At stake are home loans for 2 million households coming due for renewal amid cripplingly high interest rates in the next two years and the viability of pension funds managing more than £1 trillion worth of assets. Failure to quell a “fire sale” of U.K. bonds and currency risks a financial meltdown that could spread far beyond British shores.
The current bond market pressure began after U.K. Chancellor Kwasi Kwarteng announced a vast package of unfunded tax cuts, stoking investors’ fears about the long-term sustainability of the government’s debt.
The dramatic selloff of government bonds sparked a panic at U.K. pension funds, which couldn’t handle the price falls, and has huge knock-on impacts for mortgage rates and borrowing costs.
The political fallout has so far landed on Truss’ government’s shoulders — prompting U-turns on key policies as opinion polls showed cratering support.
Yet before the U.K.’s self-inflicted turmoil, Bailey was feeling political pressure over the central bank’s handling of double-digit inflation and the rising cost of living that comes with it.
While No. 10 refuses to be drawn on the Bank’s decisions, Business Secretary Jacob Rees-Mogg suggested a failure to raise interest rates quickly was at the root of the turmoil in financial markets.
He dismissed it as “commentary” to draw a direct link between the government’s mini-budget and concerns over the U.K.’s financial stability that led to emergency intervention from the Bank, adding that pension funds’ “high-risk” activities had played a role.
“It could just as easily be the fact that the day before, the Bank of England did not raise interest rates by as much as the Federal Reserve did,” he told the BBC’s Today program.
In another apparent swipe at the Bank, Rees-Mogg added: “The pound and other currencies have been falling against the dollar because interest rates in the U.S. have been rising faster than they have in other markets.”
In the immediate aftermath of Kwarteng’s disastrous mini-budget, the Bank seemed to be in command of the situation when it stepped in to calm the pension fund crisis and refused to be pushed into an early interest rate rise by markets. But two further interventions this week and confusion over stark comments from Bailey himself risk undermining that impression.
The governor on Tuesday issued a rare ultimatum to beleaguered pension funds struggling to meet cash calls in the government bond market. “You’ve got three days left now. You’ve got to get this done,” he warned at an event in Washington.
The bank has effectively bailed out pension funds since the U.K. government’s mini-budget roiled the markets. The bond-buying intervention is intended to offer temporary relief and give the affected funds time to raise enough cash to handle historic surges in yields.
Bailey’s message appeared to be aimed at upping the pressure on funds to sell assets in time rather than expecting an extension beyond Friday’s deadline. “We will be out by the end of this week,” he said.
Yet the remarks seemed to backfire instantly, sparking a sharp fall in the pound, although it has since recovered.
U.K. government borrowing costs also increased again on Wednesday, with the yield on 30-year gilts moving above 5 percent — the level that first sparked the bank’s intervention — before dropping back after the Bank used its firepower to buy £4.4 billion of gilts.
Financial market experts think the governor’s comments were a mistake that will force the bank into following the government’s recent U-turns.
Mike Howell of CrossBorder Capital described Bailey’s words as the “shortest suicide note in history,” and said the governor will have to change course.
“Andrew Bailey’s insistence that emergency support will end on Friday is an unsustainable position that we expect to be reversed quickly,” said Oxford Economics chief economist Innes McFee.
If the Bank loses credibility, its ability to rescue the economy from market disruption will be severely hampered. Increasingly costly interventions will yield ever more limited results if investors lose faith in the U.K.’s most important financial institution.
Before Bailey’s comments on Tuesday, one markets strategist said the Bank could “test the water” by stopping the program on Friday and then restarting if necessary — but that would be risky because it’s unclear how much yields would have to rise before triggering the same problems at pension funds.
“While a very able central banker, he has spent most of his career outside the BoE’s monetary policy and markets areas,” said EFG Bank chief economist Stefan Gerlach, previously a central banker himself.
“He is not the best fit for the job, given the nature of the problems the Bank is facing now. His communications missteps over the last year were damaging,” he said, pointing to Bailey’s confusing guidance on interest rates. “It’s like the fire brigade saying ‘you have to have your fire before Friday because then we are heading home.’”
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LONDON — Try as she might, Liz Truss just can’t calm the markets.
Despite reversing her plan to cut tax for the highest earners, bringing forward a more detailed budget statement by almost a month and halting the appointment of a controversial senior civil servant to oversee the Treasury, the Bank of England was again forced to step in to try to stabilize market turbulence.
Insiders pointed to the surprise appointment of James Bowler to the Treasury top job, passing over Antonia Romeo, who it was widely briefed had got the role, as a sign of No. 10’s anxiety.
“The PM is panicking and reaching for almost anything that she can do to calm the situation. She was so burnt by the fallout from mini-budget that anything that seemed bold, she now wants to massively trim back,” said a senior Whitehall official.
Treasury officials say that Chancellor Kwasi Kwarteng’s tone in the past week has become markedly more conciliatory as he tries to steady the buffs.
But in spite of these U-turns, the current market unease may be out of the government’s hands.
The so-called mini budget came at a particularly fragile time for the economy, caused by high inflation and the Bank of England’s attempts to end a policy that saw it buy up huge quantities of government debt, originally an attempt to stabilize the economy in the wake of the 2008 financial crisis.
Kwarteng’s tax cuts, presented without any detail about how they would be funded, spooked the markets, triggering a crisis at U.K. pension funds because the huge spike in yields forced them to bonds — but that then forced prices down further.
The Bank of England intervened with a £65 billion check book to give pension funds more time to raise cash and stop the so-called doom loop taking hold. Governor Andrew Bailey said Tuesday the Bank’s emergency support will definitely end Friday, prompting fears this may not be enough time.
The resulting crisis leaves Britain’s new prime minister with an intensifying political problem, as support ebbs away the longer it takes to tame the markets.
Jill Rutter, senior fellow at the Institute for Government and former Treasury official, said: “Paradoxically, having said they were the people to take on the Treasury orthodoxy, they are now walking on such thin ice that they are complete prisoners of the most orthodox orthodoxy.”
Staying alive
The race is now on for Kwarteng and his Treasury team to come up with a way to restore credibility by the end of October, when he is due to explain how the tax cuts will be paid for.
“It’s really difficult to see how you can have a vaguely deliverable plan to bring that back under control,” said the IfG’s Rutter, who pointed out that trying to find money from one-off events such as asset sales would not help the underlying fiscal position.
“If you’ve still got a pension fund problem with collateral issues, what [the government] give you on the 31st will probably not be that relevant, because you’ll still be dealing with a bigger problem,” said one markets strategist, speaking of condition of anonymity.
“If you as a government have somewhat stabilized [pension funds] … the currency is going to react based on how [the market] views the overall fiscal long-term sustainability.”
But the government’s dented reputation will be hard to rebuild. “If the root cause is fiscal policy, then the issue probably isn’t going to go away until the markets’ concerns over fiscal policy have eased,” said Paul Dales, chief UK economist at Capital Economics.
“That makes the chancellor’s medium-term fiscal plan on 31 October a very big event for the gilt market, the pound and the Bank of England. Our feeling is that the chancellor will have to work very hard indeed to convince the markets that his fiscal plans are sustainable.”
Ministers originally said their plan for £43 billion in tax cuts would be funded by borrowing and economic growth, but experts now warn it will require reductions in public spending.
The Institute for Fiscal Studies think tank predicted the chancellor would need to spend £60 billion less by 2026-2027, while the International Monetary Fund released a report calculating that high prices will last longer in the U.K. than many other major economies..
Ahead of the mini-budget, the Resolution Foundation’s Torsten Bell spelled out why this could have a lasting effect. “The big picture in a world where interest rates are rising and inflation is high, is that you don’t want to be seen as the one country that everyone decides is a bad bet.”
“Showing how serious you are is important,” he added. “If we are really arguing that our growth strategy is to borrow lots more and then that will pay for itself then they [the markets] don’t believe that.”
One government official speculated that in order to fill the hole in public finances and make the numbers add up Truss and Kwarteng would be forced to U-turn on further aspects of their mini-budget, such as the decision to cancel a planned corporation tax rise.
In the meantime, it’s not just the markets that remain unconvinced by Truss’ and Kwarteng’s approach.
At the chancellor’s debut session of Treasury questions in the Commons Tuesday, senior Tory MPs queued up to openly cast aspersion on his strategy.
Former Cabinet minister Julian Smith asked for reassurance that tax cuts “will not be balanced on the backs of the poorest people in the country” — normally an attack line reserved for opposition MPs.
Treasury committee Chairman Mel Stride warned that if Kwarteng did not seek buy-in from fellow MPs on the next fiscal statement it would upset the markets again.
The PM’s spokesman reiterated Tuesday that Truss is “committed to the growth measures set out by the chancellor” and “the fundamentals of the U.K. economy remain strong.”
While that statement continues to be tested, so will the position of the prime minister and her chancellor.
Annabelle Dickson contributed reporting.
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