Future BoE governor Mark Carney. Getty Images
Bank of England governor-designate Mark Carney talked a lot today about his fondness for so-called “forward guidance” — where a central bank indicates what is likely to happen to monetary policy way beyond its next policy vote.
The theory is that forward guidance boosts growth by providing more certainty to lenders that they will be able to access cheap cash from the central bank for a long time to come. Convinced of this, banks will reduce borrowing costs and lend more. And, with rates remaining lower for longer, savers will believe there is little point in holding cash and will go splurge. Read more
Mark Carney, the incoming governor of the Bank of England, was grilled by MPs and his ECB counterpart Mario Draghi faced awkward questions. By Tom Burgis, Ben Fenton and Lina Saigol in London with contributions from FT correspondents. All times are GMT.
Pretty much everyone is expecting the Monetary Policy Committee to do the same thing it has done for the past six votes and stand pat on Thursday, when governor-designate Mark Carney is also due to appear before MPs at the Treasury Select Committee.
But one former deputy governor, Sir John Gieve, thinks there’s a chance that the MPC could vote in favour of easing policy. Read more
Asked today whether the Treasury should scrap the Bank of England’s 2 per cent inflation target, former policy maker and current central banking guru Charles Goodhart said no. The target, he said, had done little to stop the Monetary Policy Committee easing rates and printing money to stave off an economic and financial meltdown.
Andrew Sentance, another ex rate-setter, agreed. “Inflation targeting hasn’t been the constriction it has been played up to be,” he said this morning.
A cynic would argue that this is because in recent years the BoE has ignored price pressures and instead focused on growth; inflation has been above 2 per cent since December 2009 — rising as high as 5.2 per cent in the autumn of 2011. Read more
If a close confidant had asked Sir Mervyn King, governor of the Bank of England, a year ago which City institutions he would like to take down a peg or two, the answer might well have been: Goldman Sachs and Barclays.
It has happened more by accident and opportunism than by express design, but during the past six months, the governor has duly hit those banks where it hurts. Read more
It seems Sir Mervyn King's eyebrows speak volumes. Image by Getty
The eyebrows of the governor of the Bank of England could become a force to be reckoned with once more.
In the days before the Basel rules, an eyebrow raised by the top man at the Bank — which was then chief financial regulator — supposedly put a stop to any misbehaviour by the banks.
It took slightly more than a raised eyebrow today. But just hours after Sir Mervyn King described Goldman Sachs’ plan to defer bonuses to avoid the 50 per cent top rate of income tax as “disappointing”, the US investment bank backed down. Read more
If Bank of England governor-designate Mark Carney was looking to spark debate, then his call for the UK to scrap its inflation target (should meaningful growth continue to elude the UK) has done the job.
The FT’s economics editor Chris Giles and economics correspondent Sarah O’Connor write in today’s paper that Mr Carney’s call has divided economists in this year’s FT poll.
Those in favour of sticking with the status quo — 45 per cent — outnumber those calling for a shift to a new regime — 35 per cent. (And not all of those in favour of a switch back Mr Carney’s calls for central banks to target nominal GDP instead.) But in previous years, support from more than a handful of economists for the scrapping of the inflation target would have been unthinkable.
Interestingly, support for change is stronger than average among those who have had to work with inflation targeting: of the ten former MPC members that took part in the poll, five want to do away with the current regime, with the rest in favour of keeping it. Read more
Mark Carney. Getty Images
Mark Carney, the next governor of the Bank of England, has suggested he will act much more aggressively to revive the UK economy when he takes charge next summer, including dumping the BoE’s much-vaunted inflation target if growth fails to pick up.
In a clear break with the views of the BoE’s current senior management, Mr Carney, now governor of the Bank of Canada, said on Tuesday that central banks should consider more radical measures – such as commitments to keep rates on hold for an extended period of time and numerical targets for unemployment – when rates are near zero. Read more
Mark Carney may be the first foreigner to become governor of the Bank of England in its 318-year history, but he is not the first to be approached.
Back in the 1960s, Harold Wilson’s Labour government wanted to replace Lord Cromer with the governor of the Reserve Australian central bank. This from David Kynaston’s The City of London: The History: Read more
Mark Carney appointed as Sir Mervyn King's successor. Image by Getty
1. Mr Carney could introduce a commitment to keep rates on hold for an extended period of time.
Fed chairman Ben Bernanke was not the first to come up with the idea of making a commitment to keeping rates at ultra-low levels for a number of years, so long as inflation remained low. Mr Bernanke’s big idea was copied from Mr Carney’s Bank of Canada, which introduced a conditional commitment in April 2009 – two years before the Fed – with the aim of lowering longer-term interest rates.
2. Expect radical changes to the way in which the Bank operates.
Bringing in a foreigner to head your central bank is very rare – it signals that the government of the day believes there’s something deeply wrong. That Mr Carney has got the job signals the government is intent on root-and-branch reform of the Bank. Read more
Officials I have spoken to since venting my anger at the raid on the government’s quantitative easing surplus have struck a decidedly disappointed tone. It was a shame I didn’t understand that there was no trickery involved; it was a pity I could not see that the move was standard practice in public sector liability management; and it was sad I had questioned whether the the Treasury’s move, which itself eased monetary conditions, undermined the BoE’s operational independence to set monetary policy.
While I have convinced a sizable majority of readers, I note that some people are swallowing these lines without much challenge. Here I will deal with the independence of monetary policy.
Let me be absolutely clear. Sir Mervyn King, BoE governor, rejects my arguments entirely. He wrote on November 9 that the monetary policy committee “was content that its ability to set the appropriate stance of monetary policy would not be affected by this action”. MPC members I have spoken to subsequently have reiterated this argument. They decide monetary policy last, they say, so they are in control. Read more
Officials I have spoken to since venting my anger at the raid on the government’s quantitative easing surplus have struck a decidedly disappointed tone. It was a shame I didn’t understand that there was no trickery involved; it was a pity I could not see that the move was standard practice in public sector liability management; and it was sad I had questioned whether the the Treasury’s move, which itself eased monetary conditions, undermined the Bank of England’s operational independence to set monetary policy.
While I have convinced a sizable majority of readers, I note that some people are swallowing these lines without much challenge. Here I will deal with trickery and liability management. In the next post, I will turn to monetary policy. Simon Ward of Henderson Global Investors is the latest to say that anything other than treating temporary profits from QE as government revenue “would be out-of-line with the treatment of other future government liabilities”. Read more
On the day of the inflation report, the Bank of England came out with its most pessimistic medium-term outlook for the economy, suggesting weak growth would not cause inflation to fall below the 2 per cent target. That suggests no room for more quantitative easing. But is that really the case?
How loose is monetary policy? How big is the QE programme? These were all questions that popped up again and again at Bank governor Sir Mervyn King’s press conference this morning in light of the Treasury’s temporary raid on the accumulated surplus of the QE pot. Here is a timeline of what we know and Sir Mervyn’s answers today. Read more
Marek Belka (right) with José Manuel Barroso, president of the European Commission. Image by Getty
The debate over monetary policy’s limits is, once again, big news.
In recent weeks, Sir Mervyn King, governor of the Bank of England, and his deputy governor for monetary policy, Charlie Bean, have both questioned the usefulness of more quantitative easing. On Thursday, the Monetary Policy Committee halted bond-buying, suggesting the majority agrees with the Bank’s top brass.
It is clear that the MPC now believes that it is running out of options, at least as far as “normal” policy is concerned.
But what is normal? Sir Mervyn has always considered quantitative easing an orthodox monetary policy. Marek Belka, president of the National Bank of Poland, disagrees. Read more
Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe
MPC/ ECB votes
Will the Bank of England’s Monetary Policy Committee opt for more quantitative easing on Thursday? Most now think more money printing is unlikely. Read more
Frequent readers of Money Supply will be aware of FT economics editor Chris Giles’ frustration with the Bank of England’s secrecy.
Chris has often criticised the Bank for its reluctance to provide more information to accompany the publication of the Inflation Report’s fan charts, which represent the Monetary Policy Committee’s views on where inflation and growth are heading and provide an important signal on the direction of policy. Read more