Any doves left in the building? The Carney roundup
Looks like Carney slid down the dovish scale towards the hawk end.
- Rates low (0.5%) for at least three years based on forecasts
- Unemployment target of 7% before looking at rate rises and unwinding of asset purchases
- Growth forecast up but won’t reach pre-crisis levels until 2014
- Forward guidance looking at response in the economy to monetary policy rather than period of time
- Maintains price stability is primary objective
- Threshold has three “knockouts”
- If MPC judges inflation more likely than not to be above target by 0.5% in 18-24 months
- MPC judges medium term inflation expectations no longer sufficiently anchored
- FPC deems that mon pol stance poses a significant risk to financial stability that cannot be contained by FPC tools
So forward guidance isn’t a definitively set path for monetary policy but just an adjustment of previous targets. Yes it’s narrowed them down somewhat and painted crosshairs on things like unemployment but it’s still all “wait and see” stuff and that’s what the market doesn’t like.
Carney himself seemed fairly nervous at the start, he skipped over fiscal talk pretty swiftly, which says to me that he’s not willing to take on the government just yet. Maybe it’s just from being in the job 5 minutes. I damn well expect him to lay the law down to them when it’s needed and that’s one thing Sir Merv was good at. It’s too early to tell but we don’t need a government patsy in this job.
Without sounding like I’m beating my own drum, it went pretty much as I expected. Rates stay low, the QE gun is still loaded but it’s locked in the draw for now. The recovery is fragile and still faces risks but the emphasis is now on taking up the slack and improving productivity.
Inflation has become an even bigger part of the equation today and they will need to monitor any home grown inflationary risk as that could affect the threshold that forward guidance is built on.
The UK is looking up for now and needs to build on where we are. It’s still not a given that we recover and there’s still a mountain of problems, but despite that we have to go in one direction or another and forward is better than backward.
We’re still ahead of the game as far as the yanks and Europe are concerned and ready to save everyone else’s sorry arses
On your toes doves!