Growing concerns

0:00Wake Up To Money from BBC 5 Live. Hello, welcome to Wake Up To Money. Donald Trump has made his pick for the new chair of the Federal Reserve. So what could the nomination of Kevin Walsh mean for the US, the world economy and for investors? Rising energy prices are pushing up the cost of homegrown fruit and veg, leaving growers worried about their future. We'll chat to the chair of the British Tomato Growers Association. And I love that that exists. The world's biggest night of the year in terms of music is winding down in LA.

0:38Bad Bunny there was one of the winners, but we will be interrupting the after party to ask a music exec whether the Grammys are still as important as they once were to the business of music. Wake Up To Money with Felicity Hanna. Very good morning to you. Welcome to Wake Up To Money. Welcome to Monday. It's the 2nd of February. New week, new month. Four minutes past five. Good to have your company this morning. And I saw an article in The Guardian over the weekend. I don't know if you were out at a pub or a bar or maybe headed out over the weekend. But there was this article suggesting that bar owners are absolutely sick of customers queuing in single file.

1:16And apparently this has all begun since COVID, post-COVID. Instead of crowding around the bar like we used to and that kind of, you know, waving a tenner to show that you're ready to order. we're all kind of queuing neatly like we're at the bank or like we're waiting to go through airport security and it is driving pub bosses wild because it's getting in the way and it's slowing down service and I suppose it's just not how pubs are meant to be. So I was wondering this morning, get in touch, have you noticed single line queues in pubs? Do you love it? Do you hate it? What other kind of behaviours have you noticed changing since Covid?

1:49Get in touch and let me know. You know the drill, but just to remind you, you can text me on 85058. You can send me a WhatsApp message on 08085 909693. And if you're listening on social media, use the hashtag WakeUpToMoney, and I will keep an eye on that. Let's chat to our guests this morning. Joining me throughout the next hour is Rachel Cattlewell, founder of Fern and Rosie Jams. Morning, Rachel. Good morning, Fliss. How are you? Well, I'm really good, actually. I always feel a bit asking people who we ask to get up early for WakeUpToMoney, asking them about, you know, when they were last in a pub or a bar feels a bit rude.

2:23But have you noticed this single line phenomenon when you've been out? No, but I feel like it has been a long time since I've been in a pub. Has it been since COVID? I don't know. Yeah, I guess so. But I do remember, you know, back in the olden days when I was at uni, I do remember the crowding around a bar. So interesting if that's not happened. Maybe it makes it easier for people. I didn't used to like having to shout up. So maybe it's better if you're less confident. Who knows? Maybe. I mean, that could be a bonus. Well, joining us this morning, Rachel, is April LaRousse, Head of Investment Specialists at Insight Investment.

2:58Morning, April. Good morning. I mean, it's been a very busy weekend in terms of lots of international, important economic stuff, like the new nomination for the Chair of Federal Reserve, which we'll talk about in just a moment. So I feel like maybe you weren't in the pub this weekend. No, I wasn't, sadly. But have you noticed any behaviours changing post-COVID? Well, I don't know, but in North London where I live, people just seem to crowd around the bar. I haven't noticed anyone orderly queuing up, but, you know, maybe I'm going to the wrong pubs. Maybe. Well, 85058, if you would like to get in touch.

3:34Somebody who doesn't give their name already has to say QR code menus also seem to have hung around. Not a fan of being forced to use my phone just to order something. I quite like those. I like that you can just sit down and get on with it. Anyway, let me know your thoughts this morning. Lots to talk about in the next hour. But let's start with the news of the weekend, really. We saw the dollar rise, precious metals fall after Donald Trump announced he was nominating Kevin Walsh, a former Federal Reserve governor, to be the Fed's next chair. Here's the president talking about his chosen man in the Oval Office.

4:09Top student, best schools, everything was like perfect. Youngest person ever to serve on the Fed. Got the whole package. Looks don't mean anything, but he's got the look, right? I love that looks don't mean anything, but we will just comment on them briefly. If Walsh is confirmed by the Senate, he'll replace Jerome Powell, the current chair, after his term ends on the 15th of May. Now, there's been a lot of pressure, hasn't there, on Jerome Powell. Last week, the committee there decided to hold rates steady, despite pressure from the president to lower them. really quite intense pressure. Here's the president again being asked whether Walsh had committed to push for rates cuts.

4:47I don't want to ask him that question. I think it's inappropriate, probably. It probably would be allowed, but I want to keep it nice and pure. But he certainly wants to cut rates. I've been watching him for a long time. So what does it mean? What does it mean for the Fed's independence? What does it mean for the rest of the world? Let's ask William Lee, chief economist at Global Economic Advisers and former economist at the Federal Reserve. William Morning. Well, Felicity, thank you so much for having me on the show. Thank you for joining us. I mean, first of all, what can you tell us about Kevin Walsh?

5:16What's he like, apart from, according to Donald Trump, a bit of a looker? He is a very special economist in a sense. His history is really quite storied, going to all the right schools and such. But I think the thing that sets him apart from every other economist I know is that he was previously on the Board of Governors appointed under President Bush. And he was there during the great financial crisis in 2008. And that was really a tough time for everyone. No one knew what was going on. The world was truly coming apart at the seams. And he was part of that group that put together emergency bailouts for a lot of financial institutions.

5:52But what was interesting was, as the crisis started to end and we started to pull out, Ben Bernanke, the chairman at the Times, said he wanted to continue to add more liquidity into the financial markets. He I want to expand the Fed's balance sheet. And what Kevin Walsh said was, you know, if I were sitting in your seat, I wouldn't be doing that. But I'm not dissenting in public because I truly support you. But I'll tell you what I'm going to do. I quit. Because he didn't believe that that was the right thing to do. And he felt that was adding inflation and all sorts of distortions in financial markets.

6:26Essentially, he thought the Fed should really get out of people's way. And because he believed that so strongly, he said, I'm out of here. So he really is a man of integrity, a man of principle. And he will walk out if he believes that he's been pressured to do something that he doesn't believe in. I mean, that doesn't make him sound then like a shrinking wallflower type who can kind of be pressured by the government, which is perhaps going to be, you know, some people have perhaps thought some of the pressure on Jerome Powell was less about Jerome Powell, the political pressure, and more about sort of warning his successor.

7:01Well, you know, Felicity, every president in the United States has always asked for lower interest rates. There is no president that wants high interest rates. There's a very famous story of President Johnson back in the time of the Vietnam War in 1965. The Fed had just raised interest rates. So he asked the chairman at the time, William McChesney Martin, to come down to his ranch in Texas. You know what he did? He shoved Martin against the wall and said, my boys are dying in Vietnam and you won't let me have any money. What's wrong with you? Now, here's an interesting story, and it's probably not causal, but ever since that incident, there was no rate increase until Johnson announced he was going to resign.

7:38Now, I'm not saying Martin is caved in, but compared to what Johnson did to Martin, what Donald Trump's name calling is, he's like a pussycat compared to Lyndon Johnson. So in terms of pressure on the Fed, it's always been there. Nixon had the same kind of stories. So I think we should remember that every Fed chairman is going to be pressured by the president to lower rates. I feel like you get more drama for your buck over in the States than we do with our central bank here in the UK. Stay with me. I want to bring in April on this. April, did we see much market reaction since that announcement?

8:16Well, I mean, there has been a small strengthening in the US dollar, but it's really been really rather small. And I was looking at what markets are expecting will happen with interest rates. And frankly, there's been no real shift. The market is expecting more interest rate cuts, but they were before the Warsh announcement was made. So it hasn't really been that seismic. And that's quite interesting, isn't it? Because on the one hand, we are hearing, William, that he's not somebody who can be pressured, that perhaps, as April says, the markets are just expecting that we'll see things continue.

8:52But this is a man who has previously called for regime change at the Fed. What do you think he means by that then? Actually, I'm glad you asked that question because the notion of regime change goes very deeply, not just in how the Fed will conduct policy, both using interest rates and the balance sheet, but it really goes toward the mission of the Fed itself. Kevin Worsh has been very strongly talking about how the Fed has gone beyond its core mandate of being a central bank, monetary policy and supervising banks. He's gone into climate change. He's gone into DEI, the diversity, equity and inclusion policies.

9:32And he felt that that kind of mission creep and the fact that the Fed's budget has quadrupled in the last 20 years, which is much faster than the pace of increase in federal government spending and inflation. And that kind of mission creep, he felt, has caused the central bank to be more and more on the front pages. And for him, a good central bank is going to be invisible. No one really cares about what they're doing. And he's trying to restore the Fed to the old days where the Fed really was just doing its job behind the background. April, is that how he's being viewed then, as a bit of a purist, simply there to control monetary policy and nothing else?

10:08Well, yes. Yes. I mean, there is this view that, you know, given his stance on should the central bank, you know, as said, be quiet in the background and just quietly adjust short term interest rates. That is that's something that the market is very focused on. The idea of the issue is how do you get from where we are now to where he sounds like he wants to be? You know, at the moment, the central bank owns an enormous amount of U.S. government bonds. If they want the Fed to own fewer of them, they somehow have to sell them. that could make bond yields in the U.S., which ultimately impacts mortgage rates in the U.S., go up, which would be also very unpopular with the U.S.

10:49administration. So it will be a delicate balance. If he really does want to stick to that, the Federal Reserve should be smaller. The balance sheet needs to shrink. How does he get there? William, I can hear you. I can hear you agreeing. Well, I have something that I've been talking about with colleagues and with my clients called the wash maneuver. The wash maneuver in monetary policy is going to lower rates pretty dramatically, but at the same time, shrink the balance sheet fairly dramatically. And by doing that, he can satisfy people's need to have affordable loans, businesses as well as people getting mortgages.

11:26And at the same time, incentivizing banks to make fewer and fewer loans. And if the loans are to be made, it's going to be made by private credit and the private debt markets, where sophisticated investors who are able to take on the risk will take on the risk. The one thing that led to the great financial crisis in 2008 was that banks were just going crazy, lending left and right to everyone, and especially to mortgages, which they thought were safe. And I think Kevin Walsh wants to limit the ability of banks to make all these outrageous loans and shift the lending and shift the risk onto more fiscal investors who can afford to do that.

12:01So if he's successful doing this Walsh maneuver, lowering rates and shrinking the balance sheet, I think he'll be probably one of the most consequential Federal Reserve chairmen since Paul Volcker. He had a reputation, though, when he was Fed governor for being quite hawkish, for favouring higher interest rates, for being quite concerned about inflation. Has he changed? Not at all. In fact, what I just called the Walsh Maneuver will do exactly that. It will lower interest rates, but at the same time, take away inflationary pressures from excess liquidity in the financial markets. Because he was convinced that that was one of the reasons why he quit, was that that kind of excess liquidity brought about by that large balance sheet of the Fed is a real danger for inflation.

12:45And so he's consistent all along. He's anti-inflation hog, but he doesn't have to do it through interest rates. Obviously, being the chair, assuming that that nomination is approved, is a very influential role. But he would still only be one of seven people on the Federal Reserve Board. Does he have that much influence to start executing the Walsh maneuver? Great question. I hate to age myself by saying that I was there when Paul Volcker was there. And Paul Volcker came in from the New York Fed president, and he had a lot of gravitas, but he had a powerful argument that said, I've got to do things completely differently than what was done before.

13:28The challenge for Walsh is to do the same thing, to have that kind of argument with the Board of Governors and with the Federal Oak Market Committee. One thing to note is that I think the committee would have actually lowered rates this time if they weren't so scared that if they lowered rates, they would look like they're under the thumb of the president. And so that political overhang has made it more difficult for the Fed to act. But I think if Walsh comes in there and being a man of principle and not under the thumb of President Trump, he may be able to carry the day. Well, we'll find out potentially after May.

14:03William Lee, thank you very much indeed for joining us. Thanks for having me. Thank you. Absolute pleasure. William Lee there, Chief Economist at Global Economic Advisers, former economist at the Fed. April, a lot of people here in the UK, they might be enjoying the drama really and the kind of excitement that William brought to our understanding there of the nominated candidate. But what does it actually mean for us here in the UK, for the economy here, for even interest rates and taxes here? Yeah, I mean, I guess one has to realise that it's not just that we get entertained by all the drama in the US, but bond markets are all very much connected to each other.

14:46And, you know, if the US bond market has a sharp move in one direction or another, or there is a perception that interest rates will be moving around rather faster than we thought, but it does have implications for other government bond markets. And, you know, the U.S. market is the largest, most liquid market, and it just tends to have strong correlations with what goes on even here in the U.K. So, you know, if the U.S. decides to lower interest rates more quickly, that will obviously speed up the growth of the country, and it will have implications probably benefiting the rest of the world as well, as US growth tends to percolate out into the UK as well.

15:27So I would expect that it could be quite a big mover for all markets if the US changes policy. Rachel, we get an interest rate from the Bank of England later this week, pretty widely expected to be held. Is it something that you watch as a business owner, as somebody trying to sort of balance your own books? Yeah, I do keep an eye. I think it's, you know, really, really broadly speaking, the higher the interest rates, the higher the cost of borrowing, and therefore the less money people have to spend, perhaps the less consumer demand there is. And obviously the lower it is, that's better in terms of spending, but also it can kind of, that could be because something worrying is happening that maybe we're not seeing yet.

16:11So I do watch it broadly, but I wouldn't say I'm an expert. Thank you very much. Thank you for all the messages you're sending in about queuing at pubs. Bruce is making an interesting point. The article was suggesting that people have forgotten how to sort of crowd around a bar, and that's why they're queuing. Bruce says, bar staff used to know who was next to be served at a crowded bar. I think that skill has largely gone. And that was a skill, wasn't it? And then I was referring to standing at the bar waving a tenner. Andy in Glasgow says, Felicity, not sure who waves a tenner in a pub to attract attention.

16:43What does a tenner buy? I think I'm just dating myself, Andy, for when I last was frequenting pubs. But yeah, it's a very good point. Keep your thoughts coming. 85058. There's a big change from today for anybody using a petrol station. Today is the launch of this new fuel finder scheme. It's been established to share up to the minute road fuel pricing. It's been suggested that it could save families up to£4.50 a tank. That's according to the Competition and Markets Authority, because people will be able to find the cheaper fuel. And actually, the plan is that from today, anybody filling up their car will be able to use real-time information to pick the best petrol station.

17:25And that filling stations, petrol stations, have to report any changes to their fuel prices within 30 minutes of implementation. So it's a big change. It will make it much easier to find the cheapest fuel in your area. Rachel listening to that it is a big change if people use it I suppose because there's always been you can go online and Google the cheapest fuel but now it's going to be updated within 30 minutes is that something that you would check before you hop in and fuel up? So we live up in very very rural North Yorkshire we live in Wednesdaydale and actually there's a petrol station in Wednesdaydale which is a horse and I think there's like a government subsidy on it where because it's like the, because it's the only place that you can get petrol, basically, it's much cheaper than you would get it anywhere else.

18:18But that means that you get, in the summer, you get really big queues of people driving to Hawes just to fill up at the petrol station, which is quite funny. But yeah, so we're very lucky in that we do have access to cheaper fuel, which, yeah, we all, I think we do all use that petrol station because of that reason. That is interesting. I wonder if we'll see, once this scheme is launched, we'll see queues at the cheapest stations. The data is going to be made freely available on the Fuel Finder website, but it's also going to be integrated into mapping software, price comparison apps to let people compare prices easily and make informed decisions on where to buy their fuel.

18:57That's what the government says. April,£4.50 a tank, actually, it's quite a lot if you're filling up regularly. Do you think this might change consumer behaviour? They might really use this data to try and save some cash. Well, I don't see why not. I mean, especially if it's integrated into navigation systems and the like, you know, people are, you know, the cost of living crisis is still very much alive and well. So more price transparency has got to be a good thing. I gather that there isn't a lot of competition in some parts of the UK. So, you know, having to be able to identify where can I get cheaper fuel is going to help at the margin.

19:34But these are all marginal things. I mean, ultimately, inflation is still much higher than certainly the Bank of England would like it to be. Yes, which I'm sure is something that the Monetary Policy Committee will be chatting about on Thursday. OK, let's talk a little bit about what we heard from Keir Starmer over the weekend. He had a busy, busy week last week, didn't he, in China, then in Japan. He also said he still wants the UK to join the European Union's 150 billion euro defence fund. This is despite failed negotiations last year. He was speaking while he was travelling between China and Japan.

20:11And he said Europe and the UK need to do more together in security and defence. Negotiations over the Security Action for Europe Fund broke down last year when the EU repeatedly insisted on a UK entry fee running to billions of euros. April, there's kind of a money question and also a geopolitical question in this, isn't there? And we'll do the money questions. But do you think that there's perhaps more pressure on both the UK and the EU to sort this out this time because of what we've seen more recently with, you know, sort of America's movement away from that very, very secure kind of NATO alliance?

20:52Absolutely. I think we've all become very aware. I mean, defense wasn't really high on the agenda until the Russia-Ukraine war began. And suddenly it became very obvious that, you know, defense needed to be higher on the priority list. And obviously the U.S. administration's approach to thinking about the importance of NATO has changed everything. So, you know, strength through unity, the UK joining up with the EU and trying to coordinate how defence money is spent, you know, which companies are involved, how do we shape defence policy. It's all critical. So I can completely understand why the government is speaking to the EU and trying to come to some agreement here.

21:32And what are we seeing then in Europe and in the UK that shows that these countries are getting more serious about increasing their defence spending? The money is starting to be spent. Most recently in Germany, a bunch of money has been allocated to various defense projects. And Germany, of course, made the biggest change in how much money it was willing to spend and how much would increase its overall deficit and focusing it specifically on defense projects. So we can see that there's actually money going to companies to start increasing defence spending. So it's really all happening. And of course, the UK has a lot to offer when it comes to defence and different types of equipment.

22:19And what could that mean then for British defence companies? Are we starting to see spending kind of coming there? Or could membership of the Security Action for Europe fund be a big boost for British companies? It would absolutely be a big boost because although British companies can put in for some of these European defence initiatives, and of course, the UK will be spending more money on defence separate from this, but they can't have as much participation as if they were part of this defence initiative. So, you know, being a full member, as it were, would make the UK much more front and centre in terms of getting some of these large contracts to build equipment.

23:02OK, let's talk from defence to gold and silver. Let's talk about precious metals. We've kind of touched on this a bit because it's all sort of slightly hinging as well on what we're seeing coming out of the US Federal Reserve, isn't it? We had this meteoric rise in recent months. for prices of gold and silver. And then they fell on Friday. Catch us up this morning, April. What are we seeing? Yeah, the market is still very jittery in Asian time. So gold and silver are continuing to sell off. Now, just to put it into context, gold was up 72 % to last year and another 20 % in January. So a sell-off of 10 % to 12 % is really just retracing a little bit of what was an enormous rise in prices there.

23:52So some of this seems to be a bit of, shall we say, profit taking by investors who may have been fortunate enough to be in that investment ahead of the big move up. Explain then the ways in which it is connected to Trump announcing his nomination for the Fed chair. Well, there's been a lot of speculation about that. And And I just don't necessarily see the direct connection. The dollar had a slightly better move on the announcement of the nominee of Warsh, as he seemed to be a sort of safe and credible replacement for Chairman Powell. But it doesn't seem to be that there was that much of a move in the U.S.

24:36dollar. To me, it looks more like there was a lot of speculation and a lot of investing in all the various ways one can get invested in gold. And of course, you know, when you've had a meteoric rise, it is natural that there will be times when the market goes the other way. So, yes, they happened around the same time, but the direct causality doesn't necessarily fit. Do you think that we get a bit over-focused on gold? Do you think that we're all, I don't know, it's sort of, it's a historic human trait, isn't it? We like to think about gold. We can kind of understand the value of gold. Do you think we hyper focus on it?

25:16Well, you know, gold is a funny thing because obviously it's been used for, I don't know, 5 ,000 years as a sort of a type of money, a way to store your wealth. And obviously, investors think about it as, you know, the safe haven when everything gets crazy and you get nervous about the world or when there's high inflation. Historically, gold has been the go-to investment. But, you know, really, the focus on gold really started to come into play when central banks started really increasing gold back in 2022, around the time that the Russian assets were frozen after the invasion of Ukraine. And suddenly central banks around the world started saying, you know what, what if we became a bad actor when it comes to how we were perceived?