The Fed toughens its talk

AMERICAN interest rates remain on hold at 1%, despite the precipitate fall in the dollar and the take-off of growth and productivity.

But there were the first hints of change in the air in the US central bank's statement last night. Rates will remain accommodating for a 'considerable period of time' - exactly the same language as in its announcement six weeks ago.

But for the first time the Federal Reserve and its wily chairman Alan Greenspan say the probability of a fall in inflation - the spectre of deflation that has haunted the US for more than a year - is in retreat.

Wall Street, celebrating the Dow's breach of 10,000 last night, saw the significant shift in language as paving the way for an interest rate rise in spring. The US would then be following the lead of other Anglo-Saxon economies including Britain and Australia.

But the Fed's comments are unlikely to be enough to halt the greenback's fall on their own. That will require more direct action by the US Treasury.

Missed by Miles

MORTGAGE lenders are feeling a little sore. The David Miles report into the British mortgage market was established by Gordon Brown to determine if a more vibrant long-term home loan market in this country would help smooth euro entry. Instead it has turned into a classic bank-bashing exercise.

Our banks are not saints. All the shenanigans over the transparency of credit card charges and the continuing debate about the costs and speed of money transmission show bad faith with customers. But the one charge that cannot be levelled is that the mortgage market in the UK is uncompetitive.

The Thatcherite reforms of the 1980s that tore up restrictions on building societies, and ended the practice of every financial institution moving in lockstep on charges, opened up a free-for-all from which we have all benefited.

Now along comes Miles to tell us that to attract new customers, mortgage lenders have the temerity to offer discounted variable rate and below-cost short-term fixes. This is at a time when existing customers have the millstone of higher standard variable rates around their necks.

Maybe I have missed something, but I thought that one of the goals is to attract first-time buyers into the market. If that means offering a discount, it is no different to the special offers that Asda uses to tempt new customers into its stores.

The idea that there is some lumpen mass of borrowers caught on the hook of paying higher rates is fantasy land. Remortgaging is at a record level, redemption penalties have all but been abolished and with the average mortgage being renegotiated every four years, there is no constraint on trade.

Would a better understanding of the risk and a better range of longer-term mortgages be desirable? Of course it would. But a long-term mortgage market in the US, with people fixing for three or four decades ahead, does not stop people renegotiating mortgages when rates are at historically low levels. In fact almost every US householder has been doing that in recent years and has the mechanism - through mortgage intermediaries Fannie Mae and Freddie Mac - to do it and shift the interest rate risk elsewhere.

The last thing our mortgage market needs is an encyclopaedia of regulations telling lenders what rate to charge and to whom. That would destroy flexibility and competitiveness.

The volatility in our housing market stems from the desire among the British to be part of a property-owning democracy. More fixed-rate deals over a 10-year period might help to smooth the cycle.

But they have not done much to stabilise the residential market in the US.

Bowe's bow

YOU can't keep a good City woman down. Colette Bowe is one of the great survivors, having worked for Michael Heseltine during the Westland imbroglio, as a City regulator and then having the good fortune to be running Save & Prosper when its owners Fleming fell to JP Morgan Chase. Now she has emerged on the other side of the fence as chairman of the Consumer Panel at the new super regulator Ofcom.

Her work will be cut out. Big regulators have a habit of being producer rather than user focused. But in an era of huge change in communications, with the emergence of a single ITV and more BBC regulation shifting from Broadcasting House to Ofcom, there will be no shortage of issues. Not least among them is the access of the less well-off to the new wired world.

It promises to be a fascinating appointment.