Can we expect a restructuring of Britain's MPC?
Interviewed by Anna Edwards on Bloomberg TV this morning (July 17), before the minutes of the MPC’s July 4 meeting were released (my segment starts 5 minutes into the clip), I said that Mark Carney would want the new Bank of England to speak with a clear, single, voice. I said that this would be a necessary accompaniment of a shift in the emphasis of policy from QE to forward guidance, as he would wish to avoid the risk of sending ambiguous and confused messages to markets. On publication, the minutes indeed showed an unusual “unanimous” vote to hold QE steady, pending the review of forward thresholds due in August..
Can we expect the more disciplined approach to continue? After all, Carney is used to the governance arrangements at the Bank of Canada, where interest rates decisions are made by the governor and his top aides. It has always been odd to see members of the staff of the Bank voting differently from their boss. Though Mervyn King was intensely relaxed about it, one can’t imagine his counterparts in other leading central banks tolerating it. Yet such a liberal approach was defensible when the only decision to be reached was on a single interest rate. It really won’t do if you need to be crystal clear in the messages being sent to markets about the future path of policy rate.
So I expect various mechanism will be used to ensure greater coherence. Members of the staff can be brought into line, by making appointment to the MPC conditional on them following the Governor’s lead. It will be interesting to see how UK rebellious externals are dealt with. Probably by ‘window guidance’: jump if you want to. If that doesn’t work, expect an early restructuring of the MPC to put the governor back in the driving seat.
There are lessons for other central banks also, notably the Fed. I happen to agree most of the time with rebellious regional Fed presidents, many of whom take a harder policy line than the soft Kweynesians who dominate the Washington staff. But a cacophany of voices doesn’t help when you are trying to steer market expectations.
Of course that’s the wrong policy anyway and none of this will do anything to get us out of the money trap – as I also argued on Bloomberg. But that’s another story.