A tale of two banks

The noise

• The Bank of England lifted interest rates by 0.75% to 3% from 2.25%, the biggest jump since 1989 and the eighth hike since December last year as it attempts to subdue multi-decade high inflation which has surpassed 10%. The banks’ governor Andrew Bailey stated that the bank rate may have to be increased further in the coming months.

• The Federal Reserve made history this week with a fourth straight three-quarter-point rate hike. This brings the central bank's benchmark lending rate to a new target range of 3.75% to 4%.

• The Bank of England has warned that the UK is facing its longest recession since records began, as it raised interest rates by the most in over 3 decades. It warned the UK would face a "very challenging" two-year slump with unemployment nearly doubling by 2025.
   

The numbers

The nuance

Two different central banks and two different approaches. The FED acknowledges they are behind the curve, supply chains have healed though good inflation has not abated, and inflation has spread broadly service businesses. Keen to dispel any fears that they lack resolve and proceeding to engineer a slowdown in consumer spending and business investment to fight the cyclical element of inflation (whilst refusing to comment on the structural element stemming from excessive government spending). The Bank of England however, despite higher inflation numbers and lower interest rates is relying solely on its expected recession to lower inflation. Time will tell which approach is more effective.

An economic recession is likely in progress and has started to impact corporate profits leading to general downgrades in earnings expectations since June and a number of high-profile profit warnings and labour force restructuring. Equity and bond markets have seen considerable declines, and while there may still be some short-term volatility in equities, they will start to anticipate the recovery before it arrives. Bond markets meanwhile now face lower risk and are well placed to do the job they were built for, compound wealth slowly and predictably though the passage of time.
 

Quote of the week

“If any lesson was to be learned with this, it is perseverance,” he said. “It took me a minute to process. I had to look at it and look at the crowd, and look at it again – and go, ‘Hey, that’s not so bad, I won.”

Travis Gienger, Pumpkin Grower and Horticulture Teacher, Minnesota
 

Growers from across the country descended on the Californian coast earlier this month carrying with them some of the world’s most gargantuan pumpkins. The giant pumpkin weigh-off, held annually ahead of Half Moon Bay’s pumpkin festival just south of San Francisco, is considered by competitors to be a Super Bowl of sorts in the unique sport, and the behemoths entered this year – some weighing as much as an average rhinoceros – did not disappoint. Travis Gienger, a horticulture teacher – who lugged his 2,560lb pumpkin all the way from Minnesota– took top prize and set a record. The trip took him 35 hours. “You think driving in a snowstorm is bad? Try driving one of these things,” Gienger said. But it paid off. He and his enormous pumpkin were awarded $23,040 in prize money.  Pumpkins like Gienger’s giant don’t happen by chance. They are carefully cultivated by elite growers who share and swap special seeds, each year pushing the boundaries of what was once thought possible. “My seed from 2020 went on to grow some of the biggest orange beautiful pumpkins,” he said, adding that another grower preferred splendour over size. Last week, the 2,560 pound pumpkin was carved into the world's largest jack-o'-lantern dubbed maverick in honour of Tom Cruise’s character from the Top Gun films and in light of the fact it survived an early-season mishap.

Source: The Week, The Guardian

 

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