Mark Carney, “an unreliable boyfriend”? I blame his Dad, George

A James Alexander post

(On the title see here)

Mark Carney is supposedly handsome, but I don’t really feel qualified to comment. One observation I would make is that handsome friends seem to be prone to unreliability. A bit like Hugh Grant, allegedly.

Carney’s lack of commitment was made clear from the day his appointment was announced when it was revealed that the new standard eight-year term for Governors of the Bank of England would, in fact only be five years for him, a special concession he negotiated. Mmm.

At Christmas a puff piece on Carney in the FT was followed two days later by a (related) story indicating he was now willing to make himself available for the full eight years . Mmm. Rather like a Premier League footballer he remains  open to offers. Mmm.

The list goes on

Carney floated the idea of NGDP Targeting back in December 2012 only to never mention it again. Mmm. He has also talked of fairly concrete “thresholds” for monetary tightening over the years, only to ignore them when they are passed through. Mmm. He has talked of “forward guidance” only to see that guidance ripped up as the “forward” time has arrived.

He was reportedly very tetchy at the press conference presenting the February 2016 quarterly inflation report. One tweet from the meeting suggested that he had said all members of the MPC agreed that the next move in rates would be up. I searched for confirmation in the official minutes but could find none. Mmm.

He has now rowed back again, apparently. In regular testimony to the House of Commons Treasury Select Committee he now says that the next rate move could be up or down, that the period to reach the 2% goal could be extended. He has even flirted with negative interest rates, the last refuge of a failed inflation-targeting regime the world over.

Extending the period to reach 2% is not a good idea if the goal is still the Bank of England’s own expectation of 2% inflation two years’ out. The constant threat of tightening every time their medium term range of expectations biases above 2% effectively tightens monetary policy, killing any hope of achieving the objective – thus depressing nominal growth lower and lower.

He is not really fit to be Governor, except that another candidate might be less reactive and more hawkish, like a new Mervyn King, and equally disastrous. An unreliable boyfriend is better than a violent one.

Personally, I blame Carney’s “dad” for this behaviour, Chancellor George Osborne. He needs to set firmer rules of behaviour. Broadening the inflation target regime to one of NGDP growth expectations targeting. A stable path of expected nominal spending, income or output – depending on your school of macro-economics – is all that is required. This stop-start monetary policy of targeting the Bank of England’s own inflation expectations two years out is just self-defeating and ultimately damaging nonsense.

4 thoughts on “Mark Carney, “an unreliable boyfriend”? I blame his Dad, George

  1. “period to reach the 2% goal could be extended”

    Are you sure, is there a transcript? I thought he said they could try to hit it SOONER, not later? I can’t find the recording on now (of course, a government web site….)

  2. I ran out of patience collecting all the links to his twists and turns. But this was what I read in The Times:
    “Mr Carney said that the Bank could provide more stimulus if the economy were to detoriate, including cutting rates from the present 0.5 per cent, as well as buying more assets through quantitative easing and amending the time frame for reaching the Bank’s 2 per cent inflation target.”

    The D Tel reported this: “(The BoE) could also add to its £375bn stockpile of asset purchases or “adjust” the horizon over which they return inflation to the Bank’s 2pc target, he said.”

    I think the official transcript comes out tomorrow. You are right, he could have meant a shortening, but I doubt it. The transcript should be out soon.

  3. In November 2015 he admitted extending the horizon a bit: “We have a more complicated judgment to make around the implications of pass through from higher exchange rate and foreign disinflation, and we do that by setting the horizon over which we wish to return inflation to target. We have adjusted that slightly, given the persistence of pass-through work done by Professor Forbes and others at the Bank, recognising the degree and persistence of pass through. We have adjusted the horizon to around two years instead of within two years.”

    Click to access 25121.pdf

  4. Official transcript is out. Britmouse, you were right. A policy tool is indeed the expectations channel, pure and simple. Good news. Carney shouldn’t tease us with it, as is his wont, but use it!
    “As Dr Weale just said, if we were in a position where the economy needed additional stimulus, we do have considerable room. We have conventional policy room. We have made clear that we think we could cut interest rates towards a zero bank rate. We could engage in additional asset purchases, including a variety of assets. We could also adjust our policy horizon; in other words, we could shorten the policy horizon over which we wanted to return inflation to target.”

    Click to access 29584.pdf

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