Rt Hon Winston Peters

New Zealand First Leader

Member of Parliament for Northland
31 AUGUST 2016

Uncertain Guidance From US Federal Reserve

The message from Jackson Hole at the weekend was far from reassuring, says New Zealand First Leader and Northland MP Rt Hon Winston Peters.

“In her speech to the high priests of the central banking world in Jackson Hole, Wyoming, Janet Yellen – Chair of the Federal Reserve said:

“‘In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.’

“The Fed chairman also said that future rate increases would be ‘gradual’ and ‘data dependent’.

“Clear as mud!

“But then central bankers have made an art form of ambiguity.

“So the Fed may or may not start raising interest rates soon. Meanwhile, the European Central Bank, the Bank of England and the Bank of Japan are still in interest rate cutting mode. (The UK, Australia and NZ all cut official rates in August).

“September 2016 marks the eight-year anniversary of the collapse of Lehman Brothers – the event that heralded the GFC. That event unleashed the era of quantitative easing by the major central banks.

“So what have eight years of historically low – and now negative - interest rates – achieved?

“Globally we see:

· Inequality has risen dramatically

· Economic growth is sluggish

· Productivity growth has stalled

· Incomes for most people are stagnant

· Savers are suffering

· Speculation has fed asset bubbles

“These trends are evident in NZ as well. What is obvious is that inflation targeted monetary policy is played out – it has had its day. Central banks are out of ammo.

Implications for New Zealand

“It is no exaggeration to say that the world economy is in an era of extreme risk.

“The world is awash with debt and interest rates are at unprecedentedly low levels. (Globally around a third of all sovereign debt is now at negative yield).

“We have never been here before. The phrase “unchartered waters” is a gross understatement.

“New Zealand First says that, given the international outlook, the government has a responsibility to recognize the state of the global economy and take the high level of risk into account in framing policy.

“That means treading warily and taking steps to reduce, not increase, NZ’s vulnerability to an external shock by:

· Updating the obsolete Reserve Bank Act to take account of current realities and economic imperatives rather than using a tool now totally out of date

· Stopping ‘cooking the economic books’ to create the illusion of growth. The NZ economy is not booming. Using an open door immigration policy to artificially boost growth is totally irresponsible.

· Putting the brakes on record immigration that is fueling the Auckland housing bubble.

· Making New Zealand’s national interest the priority instead of favouring massively profitable Australian Banks and other international corporates.”

ENDS

© Scoop Media