Almost there! Unemployment hits 7.1%

ess0two

purch wrote: »

I think you might be overestimating the power of Devonian Economic Theory somewhat :eek:

In Devons case......



A small amount of knowledge can mislead people into thinking that they are more expert than they really are.

N1AK

wotsthat wrote: »

I think Carney has been more than clear - he's saying he doesn't want to raise interest rates anytime soon in an attempt to influence behaviour. If anything backtracking on the unemployment target reinforces the message.

That's a very odd reading. It was he who announced the unemployment target after all, it's pretty misleading to announce it and then swiftly spend most of your time explaining why it probably isn't relevant anyway.

If he'd said originally that he expected to keep interest rates down until 2015 at the earliest, and unemployment is one of the reasons for this then he would have been clear.

His guidance now is basically "I don't want to lower it at the moment" with no timeline or criteria for when he might change his mind. Will it stay the same till Q1 2015, Q3 2015... what criteria will need to be hit.

We have no guidance at the moment other than the guidance that his rapid back-pedalling from his previous false guidance implies.

wotsthat

N1AK wrote: »

That's a very odd reading. It was he who announced the unemployment target after all, it's pretty misleading to announce it and then swiftly spend most of your time explaining why it probably isn't relevant anyway.

When first announced 7% unemployment was meant to seem like a long time off. Unemployment has fallen more rapidly than anticipated so makes interest rate rises seem more near term hence the awkward backtracking.

It's rather embarrassing I'm sure but the end result is that there's a strengthened message along the lines of 'we really don't want to raise rates.

Of course it doesn't follow that I necessarily believe the message - they'll raise rates whenever they think it's right to do so and you can be sure that in all circumstances it will have been covered in their forward guidance.

It's a really interesting attempt at behavioral engineering.

dktreesea

purch wrote: »

Have you ever read the Bank of Englands Forward Guidance ?

It's here on the BOE website.

http://www.bankofengland.co.uk/monetarypolicy/Pages/forwardguidance.aspx

It is not pointless, and is very clear on what the Bank will and won't do, and the conditions and events that will affect outcomes.

I read that guidance. I agree with you that parts of it are very clear. Things like they are not planning to increase interest rates whilever unemployment is higher than 7%, or inflation remains within 0.5% of the 2% target. And that they will not allow any contraction of the money supply, i.e. buying sufficient gilts to cover those that are maturing.

But by the same token, they talk of price stability as if we have this. I'm not so sure that we do. Businesses are absorbing the increased costs of imports and not passing them onto the consumer.

So they have all their triggers clear, then right at the end , they say that even if any of these triggers happen, it doesn't mean they would raise interest rates, or sell off assets, i.e. reverse quantitative easing. So what is the point of stating they would respond to those triggers if in fact they intend to firmly sit on the fence? They may as well have said it just depends on what the politicians at the time want them to do.