Ber­nanke’s ‘it could have been worse’ does the trick

The Scotsman - - As It Waits For Test Engine - Martin Flana­gan

LIkE an age­ing though tal­is­manic foot­ball star, the US econ­omy is be­ing willed by the world to de­liver again, but the world is wor­ried his knees are shot. Re­cent data on the econ­omy has trig­gered wor­ries that the US is in for a long pe­riod of slow re­cov­ery at best; at worst, dou­ble-dip re­ces­sion, mir­ing the rest of the world in the down­wards state­side slip­stream.

The fears are real, but not con­clu­sive. yes­ter­day’s re­vised data from the US did in­deed show that the US econ­omy grew by just 1.6 per cent on an an­nu­alised ba­sis dur­ing the sec­ond quar­ter of this year, down from a first es­ti­mate of 2.4 per cent.

This is not good, but Wall Street did not go into melt­down. It fig­ured that af­ter re­cent de­press­ing data, such as poor sales of durable goods and a sickly US hous­ing mar­ket, the news could have been even worse.

Many econ­o­mists feared the down­ward GDPre­vi­sion be­tween April and June might have been as low as 1.3 to 1.4 per cent. Even so, it is still a big fall in Amer­i­can eco­nomic ac­tiv­ity from the first three months of 2010, which stood at 3.7 per cent and now looks a big­ger false dawn with each pass­ing week.

Mean­while, US Fed­eral Re­serve chair­man Ben Ber­nanke’s in­ter­ven­tion yes­ter­day was straight out of cen­tral bank cast­ing. He recog­nised the down­side, said the Fed had tools at its dis­posal, but didn’t say any­thing def­i­nite enough to turn the eq­uity or bond mar­kets into ei­ther a rout or a fresh buy­ing ex­cuse. Job done, even if US un­em­ploy­ment is still well up.

Ber­nanke said the eco­nomic re­cov­ery had soft­ened more than ex­pected, and that the Fed was ready to take fur­ther steps to help that limp­ing re­cov­ery.

He in­di­cated quan­ti­ta­tive eas­ing might be used again, but did not say when or what the trig­gers would be. As it looked like the buy­ing by the Fed of long-term se­cu­ri­ties was there­fore not im­mi­nent, the price of US Trea­suries fell as some bond­hold­ers took prof­its.

And as it clearly does not look like US in­ter­est rates will rise from their lows any time soon ei­ther, the stock mar­ket stayed calm as well.

It all had the feel­ing of “it’s bad, we knew it would be, but it could have been even more bad so let’s not panic – for now”. It helped sen­ti­ment. The FTSE 100 was up about 45 points at the close, at which time the Dow Jones in­dex across the At­lantic was ahead 1 per cent.

Coali­tion's dilemma is bor­der­ing on im­pos­si­ble

I WoN­DER whether Busi­ness Sec­re­tary Vince Cable may be go­ing out on a limb with both his fel­low coali­tion govern­ment min­is­ters (ok, the Tory ones) and a fair swathe of the pub­lic in urg­ing that Bri­tain’s com­pet­i­tive­ness should not be ham­strung with ex­ces­sive border con­trols.

Cable’s in­ter­ven­tion, which will be strongly wel­comed by the Con­fed­er­a­tion of Bri­tish In­dus­try, came af­ter new data showed a jump in net mi­gra­tion to Bri­tain of 20 per cent last year – up to 196,000 from 163,000 in 2008.

The Busi­ness Sec­re­tary can fairly point out that the rise was due to a fall in the num­ber of peo­ple leav­ing the Uk to live over­seas as the num­ber of non-EU work per­mits fell.

But it re­mains a tick­lish is­sue be­cause for many peo­ple busi­ness ef­fi­ciency is just one im­por­tant fac­tor to be con­sid­ered in im­mi­gra­tion pol­icy, not an un­think­ing touch­stone for com­mon sense.

It looks like the Tories with their trum­peted cap on work visas at the last elec­tion were the quick­est of the three par­ties

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