The Fed has moved at last. The quarter-point rise in the key Fed Funds rate is not the biggest tightening of monetary policy — only a few weeks ago, analysts were talking about a half-point hike — but it is both concrete and symbolic, being the first since 2018. It also signalled much faster tightening over the course of the year.
In any normal environment, this would have been considered a no-brainer. Inflation in the United States is running at 7.9 per cent, its highest for 40 years. The labour market is tight, the housing market in boom mode, bottlenecks are proving stubborn. And financial markets were more than ready for it: there was no tantrum last night.
Central bankers can usually find a reason to delay unpopular measures. The uncertainty caused by the Ukraine invasion and the looming squeeze on real incomes have been put forward as reasons to pause a bit longer. The International Energy Agency’s warning yesterday that the oil-consuming world could be facing its “biggest supply side crisis in decades” was another grim prediction seized upon by the doves.
But the world desperately needs to get back towards normalising monetary policy if it is to pre-empt a nasty prices/wages spiral. Some short-term pain is a price worth paying if it prevents this scourge creeping back into the system after more than 40 years.
It’s a lesson the Bank of England needs to take to heart as it ponders its own interest rate decision today, with UK inflation nearly three times target at 5.5 per cent and inflation expectations rapidly worsening.
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As the Institute of Directors has repeatedly pointed out, businesses are far more concerned about the havoc that entrenched inflation could do than any modest rise in their borrowing bills.
Andrew Bailey, the governor, needs to stiffen the sinews, take heart from the Fed and tighten once more. If he really wants to start to restore his moth-eaten inflation-fighting credentials, it needs to be a half-point increase, not just a quarter.
Cyber insecurities
Ondrej Vlcek had done his monopolies homework, he insisted last August. The chief executive of the London-listed Avast was confident the £6.2 billion takeover of his antivirus software business by NortonLifeLock would not be derailed by regulators.
That seemed a bit optimistic. Morgan Stanley pointed out the two companies had a combined market share of 30 per cent to 40 per cent. It was enough to alarm the Competition & Markets Authority, which yesterday called for the two sides to come up with remedies or face a full-scale inquiry.
Norton has called its bluff, declining to propose immediate remedies and accepting an inquiry that will delay any deal by 24 weeks (report, page 45). It is encouraged by the clearance it has received in the US, Germany and Spain. The offer for Avast, after adjusting for Norton’s falling share price and the exchange rate, now values each Avast share at £6.41. Yet Avast closed yesterday at £5.60, off 13 per cent. The market thinks there is a significant chance this deal won’t happen. Either that, or there’s a nifty arbitrage opportunity.
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In need of a tonic
Could we have more profit warnings like Fevertree’s, please? The fizzy drinks group warned it was being badly shaken by rising costs. Profits this year won’t be the £69 million to £72 million signalled in January, but just £63 million to £66 million. The response? A 9 per cent surge in the shares. The promise of a £50 million special dividend softened the blow.
Expansion into new markets has had a price. For a while, Fevertree had no bottlers in the US. That has been no fun, with the cost of sending a shipping container up from $2,000 in 2019 to $7,000 today.
It still contracts out manufacture, bottling and freight to third-party firms. The jewel of the junior market remains a virtual company with only 280 employees.
In smooth times, this asset-light model works like a dream. In times of global upheaval and supply chain shocks, Fevertree does depend more on the kindness of strangers.
Board games
The wind has rather been taken out of Legal & General’s sails as it campaigns to stamp out all-white boards. It had planned to name and shame DS Smith and Evraz as the only two FTSE 100 companies without a single ethnic director, and to vote against their chairmen.
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But Smith, the cardboard company, has appointed a black director, Alan Johnson, in the past few days, while sanctions-clobbered steel group Evraz suddenly hasn’t got a board at all, regardless of colour, creed or gender, and no chairman to vote against.
Still, the wider campaign seems to have worked: of 79 companies that L&G recently engaged with in Britain and America, 51 have since appointed their first non-white director. Of them, 65 per cent have never been a listed company director before, so the talent pool is genuinely being broadened.
L&G’s instinct is correct. It is bad for society and probably bad for the bottom line that company boards still look so different from the customers they serve, the people they employ or the communities they operate in. The case for targets and shareholder pressure is strong.
The case for unbending quotas is less clear cut. Boards typically replace only one or two directors a year. They need myriad skills — from, say, cybersecurity expertise to supply chain knowledge. Skin colour is lower down their list of immediate priorities.
patrick.hosking@thetimes.co.uk
Alistair Osborne is away
