Were the minutes of May’s Monetary Policy Committee meeting, out today, dovish or hawkish?
The vote, which left David Miles as the sole member voting in favour of more money printing for the second month in a row, was more hawkish than most had expected. Read more
Martin Weale, one of the external members of the Monetary Policy Committee, delivered an excellent speech last night on the determinants of UK consumption.
The value of his speech did not arise from his bolted-on views that he does not think “there is likely to be a further case [for more QE] once our current programme is complete”.
Rather it came from taking a really big issue — the likely path of consumption — and analysing it in a way that brought insights from different sorts of households to the aggregate.
But in such an interesting talk, what on earth was he doing referring repeatedly to economic forecasts from the Office for Budget Responsibility? He has no influence over the OBR forecasts, but is important (one of nine) in agreeing the Bank forecasts.
It was akin to Moody’s downgrading UK sovereign debt on the basis of reading a report from S&P. Read more
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ECB’s big bazooka
Next week’s main event is, of course, the European Central Bank’s second offer of cheap three-year loans.
Attention is fixed on whether the take-up will be greater or less than in December, when the central bank loaned €489bn. Read more
Here is a prediction. Now the Federal Reserve has moved towards publishing explicit interest rate forecasts, the Bank of England will follow suit. Moreover, it will happen sometime after June 2013.
The reason for my prediction isn’t as simple as the fact that central banks are assiduous followers of fashion, even though they are. But that the more forward-thinking officials in the Bank believe in increasing transparency and have a rather less cynical view of the British public and media than the current governor, Sir Mervyn King.
As Robin pointed out in his post on Tuesday, the Bank of England’s current forecasts have some advantages. By forecasting growth and inflation on the basis of two assumptions for monetary policy (constant policy and market expectations of interest rates), the growth and inflation forecasts are consistent with the assumptions for monetary policy. If inflation is forecast to be lower than target at a two to three year policy horizon, the implication is clearly that monetary policy is likely to loosen and vice-versa. Read more
A lot has recently been written on the causes of banking crises. Central banks – many of which have taken on responsibility for macroprudential policy – have produced much of it.
This time it is the turn of Martin Weale, an external member of the Bank of England’s Monetary Policy Committee, and Matthew Corder, a Bank economist, who have published a paper on predicting crises and recessions.
Though the research points to three reasonable predictors of crises, none are perfect. The degree to which they are flawed offers some indication of just how tricky setting policy for financial stability will be. Read more
Martin Weale’s speech today shows how far the policy debate has shifted at the Bank of England. As recently as early July, this external member of the monetary policy committee was voting for higher interest rates. Now he is openly talking about restarting quantitative easing.
Mr Weale should certainly be praised for being as good as his words. In March he said he was perfectly happy to change his mind if the facts changed and he has done so. No longer voting for a rate rise does not indicate a previous error of judgment, only that circumstances have changed.
From his speech today, Mr Weale, one of the more hawkish MPC members, now clearly thinks that UK QE2 might be necessary and he believes it would work. Read more
Martin Weale, one of the external members of the Monetary Policy Committee gave a speech last night, which was fascinating for anyone interested in the presentation of monetary policy in an uncertain world.
Policy. Regarding the UK interest rate debate, he did not have much to say, save for reiterating that CPI inflation looks likely to get close to 5 per cent. He also had a powerful argument for the Bank staff who fret that its reputation might be damaged if it raised interest rates only to discover this was wrong and had to subsequently reverse the decision. Though that scenario would be bad for the Bank’s credibility, it would also be bad to use this concern to avoid an interest rate rise only to find subsequently that it was warranted, Mr Weale said.
Uncertainty. But the comments on monetary policy were a side show in the talk to the much more meaty discussion of how to present uncertainty in economic forecasts in a way that demonstrates accurately the state of knowledge about the future, which is greater than zero but far from complete.
Mr Weale’s contribution was to suggest we split the known unknowns – arguments over theory, some model parameters and judgments on things like the right future oil price assumption – from unknown unknowns – stuff that happens. Read more
MPC member Martin Weale’s next vote is unclear, as forthcoming economic data will need to be balanced against the longstanding risk of higher inflation.
In an article for the Guardian, Mr Weale explains his concerns about price rises, saying: “There is a risk that continuing rapid economic development in China and elsewhere will lead to persistent upward pressure on commodity prices,” which could lead to higher inflation expectations. “The cost of a small rise now,” he says, “would be lower than the eventual price of addressing higher ingrained inflation.”
At the last MPC meeting, Mr Weale joined Andrew Sentance in voting for a 25bp rate rise. Shortly thereafter, preliminary UK growth figures suggested the economy shrank in December – a surprise to analysts, economists and journalists alike. A contraction – if sustained – removes much of the basis for a tightening of monetary policy, leaving Mr Weale’s decision seemingly at odds with economic reality.
Central bankers are not fortune-tellers, though, as Mr Weale’s article points out. “Economic policy needs to respond to the facts; to ignore them would be absurd. But how much weight should be placed on the most recent data, which may be erratic and subject to revision?” Some may find Mr Weale’s indecision alarming, but personally it is a relief to see central bankers tussling with so many factors. Their struggle is a sign of their awareness. Read more
Martin Weale, the new boy on the Monetary Policy Committee, has just finished giving evidence to the Treasury Select Committee on his recent appointment. He was safe and boring. Bank of England officials appeared delighted with his performance.
Mr Weale said he was neither a hawk nor dove, but this was in the eye of the beholder. The austerity Budget did not have a major impact on the outlook. Monetary policy should be the first line of defence against a further weakening. In such circumstances it would be appropriate for the MPC to look at ways it could stimulate the economy further, such as more quantitative easing and some stuff on the boundary of monetary and fiscal policy. Read more