Andrew Bailey, the Governor of the Bank of England, delivered a speech this morning on the cost of living. His conclusion was:
However, the first chart that supported his speech was this:
If you go behind this chart what you can actually find is a prediction by the Bank that there will, with 25% confidence, be deflation by 2024.
I have in that case a simple question. If this chart reflects what the Bank thinks then why aren't they cutting interest rates, fast, now? After all, they are saying inflation is beaten.
My alternative question is, if you think rate rises are still required why aren't the Bank reworking the chart to explain why that is necessary?
My point is, you can't publish that chart and talk about rate rises when they so obviously are no longer required (if they ever were) which I doubt. That is tautologically impossible.
It's time for the Bank to stop playing about on this issue and either say they are failing on inflation, and hence need rate rises, or they are winning and start cutting rates.
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Or just come clean and admit they are maintaining a dirty peg to the US Dollar, effectively transferring .management of UK monetary policy to the Federal Reserve and bugger the consequences for the British public
Do we know why the Fed is endlessly raising rates? Some say it’s to keep investment in Treasuries rolling in preserving the dollar value in the international markets/hegemony, others say it’s to discourage domestic spending, crushing demand as they brutally put it. It could indeed be Bailey is shadowing the dollar in order to keep the cost of imports down as so many essentials are priced in dollars, but whether he’d admit to that or be believed if he did is perhaps open to question especially after his time at the FCA where he seemed able to excercise Nelsonian powers of ignoring whole herds of elephants in rooms upon market demand.
My view is that these are not games.
It’s torture.
I think the point is that the Truss-Kwarteng debacle is much too recent for the BoE to risk surprising the markets. And that does mean following in the footsteps of the Fed.
However that quote does suggest that Bailey is floating for the markets the possibility that interest rates have already peaked, may stay steady this month and then start being reduced. If that is the case, his analysis is the same as yours just with a difference in timing. But no doubt he will be looking for signs of positive or negative reactions to his words before decision day.
Markets need explanations
They do not need nonsense
Truss fed them nonsense as did Bailey the day before Kwarteng did
Now he is doing it again
Indeed and demonstrably so according to Steve Keen and Phil Dobbie; “They are pushing up interest rates the world over because monetary theory dictates that this is the way to bring down inflation. But not so long ago those same banks were arguing that inflation was only transitory and there was no need to lift rates. So, what changed? And why isn’t it working. Inflation is coming down very slowly and the wage pressures they seek to ease, by making people lose their jobs, isn’t working. The labour market is as tight as ever. This week Phil asks Steve what central banks are playing at, and, if they fail, will governments and the public start to lose faith in them and the policies these unelected representatives foist on us?” in this podcast which I stumbled upon at https://debunkingeconomics.com/episode/are-central-banks-heading-for-a-fall
Hi Richard,
Isn’t the answer in the subtitle of the chart? The BoE forecasts (rightly or wrongly, you choose) are based on current market expectations eg on the future level of rates.
So this chart shows what comes out of their (flawed or otherwise) model when current expectations of further rate rises are included.
Caio, Paulo
Are markets expecting rate increases?
I thought not
Yes, the story of the past week or so.
Higher rates for longer here, in Europe and in the US.
The only reason Andrew Bailey has raised interest rates is to continue the transfer of massive wealth from the majority of ordinary people to the small minority of the super-rich. Present inflation, as has been pointed out many times, is not due to excessive wage demands but to gas, oil, and coal prices shooting up partly due to the Ukraine war and maybe some supply chain problems post covid. True, the BOE follows the fed just to keep the exchange rate of the pound Sterling up (but is not really effective) but this is never mentioned in the MSM.
First time I’ve seen the direct contribution of energy prices plotted. Would be fascinating if someone has been able to plot the contribution from non-direct impacts. And then plot inflation minus that. I suspect we’d have been seeing a protracted period of deflation?? In any event, I think that (imaginary?) chart would illustrate most eloquently how the politicians and central bankers (and their market cheerleaders) have been lying to us about the risk of an inflation spiral. If such a chart exists I’d like to see it plastered on every billboard in the country.
That was in the MPC minutes recently