Incoming Bank of England Head Mark Carney: Inflation to stay higher for longer

When it was announced that ex-Goldman Mark Carney would take over at the helm of the BoE in 2013, there was the usual debate over whether he would be a ‘hawk’ or a dove’.

For example:

So, Mr. Carney, Hawk or Dove?

Now the world’s financial analysts have got over their shock at the appointment of Canadian central bank chief Mark Carney to the 120th governorship of the Bank of England, they are, inevitably, all turning ornithologist and trying to work out whether the new bird will wear the plumage of hawk or dove once he’s in his London nest.

And this:

Mark Carney appointed as Bank of England governor: reaction

The fact that the Bank of Canada does not publish minutes or a voting record of its meetings makes it hard to place Carney as a dove or hawk relative to the views of others. Carney is generally seen as pragmatic and astute economist, rather than one with a predilection for one particular school of economic ideas….

Governor Mark Carney is regarded by some as one of the G7’s more hawkish central bank governors. Under Carney, the BoC has embarked on some cutting edge policies, especially in connection with the clear and date-specific guidance of monetary policy, tactics which the US Federal Reserve has also adopted.

Or this:

Analysis – Carney track record holds hints of Bank of England path

Britain can expect its next central bank chief to be tough with its banks while being more nimble on monetary policy than his recent hawkish talk might suggest.

The very notion that ANY central banker is a ‘hawk’ in recent years is a complete oxymoron. Central bankers print money for a living and that’s it. The only difference are in the amounts printed – somewhere on the scale of ‘a lot’ to ‘sheer lunacy amounts’ (***cough*** King ***cough***).

Perhaps we should start calling them either ‘doves’ or ‘ultra-doves’ – we should certainly stop using the phrase ‘hawk’ for that bird went extinct after Volcker left the Fed in the late 80s.

But there were certainly a few at the time of the Carney appointment who thought that Carney was going to be somewhat hawkish. However, after Carney’s speech at Davos over the weekend people who thought this are certainly looking rather silly now.

Here’s the key points he made:

If you are coming from above [the inflation target] and you have a fiscal consolidation you might take a little longer to get back given the issues with output.

This is an implicit warning that inflation is going to remain higher for longer, something even the Daily Mail realises:

Incoming Bank of England governor Mark Carney has given the clearest signal yet he is willing to see higher inflation for longer to support economic growth.

Speaking at the World Economic Forum in Davos, Switzerland, Mr Carney indicated he was prepared to see inflation, which is currently running at 2.7 per cent, remain higher than the government’s two per cent goal for longer if it means output can be increased faster.

Carney adds:

There continue to be monetary policy options in all major economies and they have to be framed in the context of the [monetary policy] mandate…

The role of central bank is to determine the optimal path to return inflation to target taking into account all the broader impacts on the economy and the impact on financial vulnerability, including the global financial situation.

No. This is NOT the role of the central bank. As we’ve pointed out again and again (most recently here) the role of the central bank is to keep CPI inflation at 2% ‘AT ALL TIMES’.

It would now seem likely that in order to try and save any vestiges of credibility the BoE has left, the remit for the BoE is going to have to be changed to give the BoE more flexibility in it’s targeting of inflation because under the current law it is very clear – more than three years of missed targeting is not permissible as it stands. Something that King and now Carney show utter disregard for.

We do wonder when the MPs will wake-up on this issue and start asking questions about the fact that the remit of the BoE is being made up as we go along and has now moved so far from its original intention as to be unrecognizable.

Be in no doubt whatsoever, Carney is an ‘ultra-hawk’, just like all the rest, and he will have no trouble in continuing the debasement of the pound in your pocket regardless of what any silly (in their eyes) legal requirement might say.

A hawk? Give us a break.

Link to this article: : http://www.goldmadesimplenews.com/analysis/incoming-bank-of-england-head-mark-carney-inflation-to-stay-higher-for-longer-9582/

Posted by on Jan 28 2013. Filed under Analysis. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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