MPC gives forward guidance

Graham_Devon

Stating that rates will remain at 0.5% until the employment rate falls under 7%.

However, there are a range of "buts" which may change this guidance. Firstly, if it effects price stability and secondly if it effects "any other financial stability".

So the promise is only a promise if it doesn't effect anything too much.

They will also continue QE if it is "required" and they will only reign in current QE if "it is required".

Apparently this all gives greater clarity over the stance of the BOE.

He's now gone on to say that it's important to state that this forward guidance is NOT a promise of keeping rates low.

ILW

No mention of inflation then?

Graham_Devon

ILW wrote: »

No mention of inflation then?

Yes. Inflation will fall back to 2% in around 2 years time. (again!)

It's all "past price increases" pushing it up. Straight from Carney's mouth. So if it's all past price increases not sure why it will take 2 years, but that's what was said and will no doubt be quoted in the media later as it didn't make much sense.

The whole thing was extremely wooly to be fair. Especially the forward guidance that can change if pretty much anything changes.

Seems to be doing the same as Mervyn King did, trying to state something but not wanting to state anything.

We'll have to wait I guess to see the reaction, certainly many from the reports I read wanted to see 0.5% interest rates pegged to 6% unemployment, so this may not cut it for them.

Graham_Devon

Being accused of being "fuzzy" by someone in the audience now. He wanted to know what the "range of market indicators" actually are that inflation is based on that will change their stance.

Carney has said there are a range of inflation indicators they look at in a variety of ways in response.

The whole thing seems setup to answer nothing and say nothing. IMO anyway.

N1AK

Graham_Devon wrote: »

Stating that rates will remain at 0.5% until the employment rate falls under 7%.

However, there are a range of "buts" which may change this guidance. Firstly, if it effects price stability and secondly if it effects "any other financial stability".

I've got no issue with what I've heard so far, except that we still seem incapable of expressing how we'll make the decision (strongly implying they don't really know or they know and don't want us to).

My biggest issue with Merv was that he clearly wasn't trying to control inflation but would never admit that he was ignoring the inflation target. Frankly that really annoyed me, and was effectively the same as lying: they clearly weren't targeting inflation but by having it as a target they were saying they were.

Graham_Devon

Hamish will be very pleased!

House prices are undervalued according to the BOE! Reuters asked whether Help to Buy will fuel a housing bubble.

The response:

It's something we watch closely.We have to put recent developments in the housing market in context. We still see for example mortgage applications are well below historic averages. We see high loan to value loans. Valuations are still a bit off.

Tancred

Low interest rates can't go on forever, and Carney is still accountable to the government. He can't ignore inflation. Despite the RPI to CPI fiddle, inflation is still churning away above 3% and it's unlikely to drop by much. By any normal assessment, interest rates should be 2% or 2.5%, not 0.5% - and there is a risk of the housing market beginning to overheat again, at least in the London-SouthEast region.

Tancred

Graham_Devon wrote: »

Hamish will be very pleased!

House prices are undervalued according to the BOE! Reuters asked whether Help to Buy will fuel a housing bubble.

The response:
[/I]

House prices are regional.
House prices are undervalued in the Midlands, North and Scotland/Northern Ireland, but definitely overvalued in London and South-East. In East Anglia and the South West prices are probably at the correct level.

Radiantsoul

I don't think it is that wooly.

He is stating that interest rates will remain at 0.5% for a while. Unemployment is 2.5m and it needs to drop to about 2.2m. Given that unemployment has fallen by 72k in the past year I think we can expect that rates are unlikely to rise before the end of 2014.

N1AK

Tancred wrote: »

Low interest rates can't go on forever, and Carney is still accountable to the government. He can't ignore inflation.

He is, and if he is able to say openly that he won't change rates then the government is clearly happy for inflation to remain above 2%. Clearly he, and the government, won't just let inflation rise out of control; however it's clear that if inflation stays around 2-4% they aren't going to do anything about it.

Graham_Devon

Radiantsoul wrote: »

I don't think it is that wooly.

He is stating that interest rates will remain at 0.5% for a while. Unemployment is 2.5m and it needs to drop to about 2.2m. Given that unemployment has fallen by 72k in the past year I think we can expect that rates are unlikely to rise before the end of 2014.

By wooly, I'm stating that it's forward guidance that may change based upon many variables, pretty much every variable we have now. I.e. this forward guidance is simply giving an idea of when rates may rise, but even that idea can be undone.

An FT journalist at the speech has tweeted:
"Is Carney a banker or a lawyer?" Guidance has "so many escape clauses". Like reading a disclaimer."

Seems to be the running theme.