As of 10:03 am EST, I haven’t seen any news out of the Bank of England discussing modifications to findings in its August monetary policy report. The current bank rate set by the Bank of England is 0.1% with a target rate of inflation at 2.0%. The Bank of England currently purchases GBP895 million in government bonds in an attempt to keep borrowing rates low for consumers and businesses.
The Bank of England expects inflation to continue rising over the Bank’s current 2.0% target for the next two years before falling back to the target.
OANDA reports a .41% increase in the GBP-USD exchange rate between 30 August and 7 September with an exchange rate of 1.3839 as of 10:03 am EST. As of 10:17 am EST, Reuters reports an exchange rate of 1.3780 while Bloomberg reports an exchange rate of 1.3787.
There is a hearing scheduled at 11:00 am EST on 8 September 2021 to discuss the Bank of England’s August monetary policy report. The London market closes today at 11:30 am EST.
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The Board of Governors of the Federal Reserve System begin their two-day meeting next Wednesday, one day after the general election. No changes in inter-bank rates are expected, but what will be of interest is a likely repeat of the plea that Congress and the Executive implement a fiscal policy that keeps the economy on life support during the pandemic. Depending on who wins the Electoral College, Chairman Jerome Powell’s post-meeting comments will be either soothing or raise more hairs on the back of the public’s necks.
Mr Powell will reiterate the need for fiscal policy because monetary policy can only do so much. Monetary policy has as one of its goals the backstopping of its member banks, providing needed liquidity when the credit pipes become clogged by opening the flow of credit to businesses via the banks whose inability to lend could stem from not having enough capital to support additional lending.
Fiscal policy, the Fed chairman will likely remind us next Thursday, does a better job of getting cash into the hands of consumers resulting in increased personal expenditures. Consumer spending has historically driven around seventy percent of national income, and that the kind of spending that is needed now.
But this relief is going to be temporary. The more sustaining stimulus will come from an economy that opens back up. If the polls continue to hold and Joe Biden takes office in January 2021, he could take actions to keep needed capital in the United States that probably props up the economy. Would Mr Biden want to tax this capital as part of his promise to bring about an equitable tax environment where the affluent pay their fair share of taxes or will he back pedal on taxing captured capital in order to quell any attempts at tax avoidance while ensuring the availability of stimulative spending?
Mr Biden may also be reminded that in an economy that is credit driven, where banks are the information search agents that help capital seek out higher returns by identifying worthwhile investments, he could also leave banks, their investors, and their depositors off of his tax hit list thus helping the Federal Reserve further unclog the credit pipes.