Should Mark Carney Shut Up?

Thrugelmir

lisyloo wrote: »

I agree with all of that.
What I don't get us how it generates confidence and stability when it has been laughably wrong and on the verge of incompetant.

I laugh when people make such statements. As if it's so easy to forecast future events for a whole economy. The term "forward guidance" is the clue. As at today "we think". With new data the economists at the BOE could revise their view tomorrow, then the day after, then the day after...........

worldtraveller

Thrugelmir wrote: »

I laugh when people make such statements. As if it's so easy to forecast future events for a whole economy. The term "forward guidance" is the clue. As at today "we think". With new data the economists at the BOE could revise their view tomorrow, then the day after, then the day after...........

Why do you laugh Thrug? The basic problem is that these idiots don't live in the real world. They are living in an ivory towered world, with little connection to the real world. They are, and have been, for years, months behind what's actually happening.

I'm very happy with my investment decisions, with my own research, which are based on reality, and not pointless economists & analysts views, by talking to people in the commercial world every day, just as they have been, for the past couple of decades at least.

MPD

Forward guidance made no difference to my mortgage choices. I could have gone for a fix where 5 years was 2.54% and shorter terms were slightly lower, a tracker at base + 2.49% or SVR of 4.49%. The fix was a clear winner, cheaper initially and no chance of increasing for 5 years.

The forward guidance is rates will rise, maybe at time x. Part 1 of the statement is right, part 2 will be right at some point.

CLAPTON

wise people have learnt to ignore forward guidance but can still enjoy the gravitas still afforded to the pronouncements

worldtraveller

CLAPTON wrote: »

wise people have learnt to ignore forward guidance but can still enjoy the gravitas still afforded to the pronouncements

Or, let's be honest, more often than not, laugh at the, largely ignorant, 'gravitas' of the pronouncements!

chewmylegoff

On 7 August 2013, the MPC made the following guidance statement:

The Committee intends at a minimum to maintain the current highly stimulative stance of monetary policy until economic slack has been substantially reduced, provided this does not
entail material risks to either price stability or to financial stability.

In particular, the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a
threshold of 7%, subject to the conditions below.

The MPC stands ready to undertake further asset purchases while the unemployment rate remains above 7% if it judges that additional monetary stimulus is warranted. But until the
unemployment threshold is reached, and subject to the conditions below, the MPC intends not to reduce the stock of asset purchases financed by the issuance of central bank reserves and, consistent with that, intends to reinvest the cash flows associated with all maturing gilts held in the Asset Purchase Facility.

The guidance linking Bank Rate and asset sales to the unemployment threshold would cease to hold if any of the following three ‘knockouts’ were breached:

in the MPC’s view, it is more likely than not, that CPI inflation 18 to 24 months ahead will be 0.5 percentage points or more above the 2% target;
medium-term inflation expectations no longer remain sufficiently well anchored;
the Financial Policy Committee (FPC) judges that the stance of monetary policy poses a significant threat to financial stability that cannot be contained by the substantial range of mitigating policy actions available to the FPC, the Financial Conduct Authority and the Prudential Regulation Authority in a way consistent with their objectives.
The Committee will continue to set the level of Bank Rate and the size of the asset purchase programme each month, taking these criteria into account. The action taken by the MPC if any
of these knockouts were breached would depend upon its assessment at the time as to the appropriate setting of monetary policy in order to fulfil its remit to deliver price
stability. There is therefore no presumption that breaching any of these knockouts would lead to an immediate increase in Bank Rate or sale of assets.

This was accompanied by a detailed assessment of guidance available here:

Monetary policy trade-offs and forward guidance

On 12 February 2014, as unemployment approached 7%, the MPC made a further guidance statement on the setting of monetary policy once the unemployment threshold had been reached:

The MPC sets policy to achieve the 2% inflation target, and, subject to that, to support the Government’s economic policies, including those for growth and employment. Despite the sharp fall in unemployment, there remains scope to absorb spare capacity further before raising Bank Rate. When Bank Rate does begin to rise, the appropriate path so as to eliminate slack over the next two to three years and keep inflation close to the target is expected to be gradual. The actual path of Bank Rate over the next few years will, however, depend on economic developments. Even when the economy has returned to normal levels of capacity and inflation is close to the target, the appropriate level of Bank Rate is likely to be materially below the 5% level set on average by the Committee prior to the financial crisis. The MPC intends to maintain the stock of purchased assets at least until the first rise in Bank Rate. Monetary policy may have a role to play in mitigating risks to financial stability, but only as a last line of defence if those risks cannot be contained by the substantial range of policy actions available to the Financial Policy Committee and other regulatory authorities.

So, the bank said that they would definitely not increase rates whilst unemployment was above 7% unless eg. Inflation started to run away.

In what way was this guidance misleading to anyone? There was no promise to increase rates once unemployment crossed 7% - it seems to me that the guidance was intended to provide people with certainty that the status quo would be preserved at least until a certain point, not to forecast when rate rises might start.

its not like he said "fix your mortgage for five years now as rates are going through the roof from next Tuesday". If he had banks would immediately adjust their mortgage pricing anyway so it wouldn't do you a whole lot of good...

Generali

Mistermeaner wrote: »

Interesting. Why do you say investment banking is dead?

Is it because of the rise of the diy investor and cheap direct access to markets?

Because so much of what they do demonstrably adds no value and they seem to have an active policy of stitching up their customers.

There will remain a position for them for capital raising but a lot of the derivative operations will be unwound IMHO.

michaels

purch wrote: »

Mr Carney speaks too much, and say's too little.

The markets are clearly telling the BOE that they need to raise the Base Rate, and many of the economic indicators are showing the way too.

Funny, to me the reduction in borrowing and saving rates in the last few months at all maturities suggests the markets are saying no such thing.

lisyloo

Thrugelmir wrote: »

I laugh when people make such statements. As if it's so easy to forecast future events for a whole economy. The term "forward guidance" is the clue. As at today "we think". With new data the economists at the BOE could revise their view tomorrow, then the day after, then the day after...........

To my way of thinking that contradicts what you said in post 9 about it allowing you to plan with certainty.

purch

michaels wrote: »

Funny, to me the reduction in borrowing and saving rates in the last few months at all maturities suggests the markets are saying no such thing.

i'm talking more about the FX markets.

GBP's recent slide is due to the perception that our Base Rate is out of step with our underlying economy. When commentators talk about interest rates and exchange rates they often over simplify the relationship, but in reality a currency will be sold when the market spots a discrepancy.

The FX markets clearly do not have the same confidence in the UK economy as they were showing 6-12 months ago. I very much doubt that the constant witterings from the Guv'nor is helping that confidence much either.

The money markets are reflecting the actual level currently, they do not reflect expectations as much.