#forward guidance

[notayesmanseconomics]

The Bank of England keeps making the wrong decisions

This week has been a significant one for the Bank of England and this links to its decision to cut interest-rates to 4.5% last week. I will look at the thoughts of policymaker Megan Greene in a moment but let me start with her subject which is “macro-economic developments abroad”. At this point ordinary analysis would concentrate on the Trump Tariffs but there is more behind this. You see the US…

[notayesmanseconomics]

Where next for interest rates as Switzerland and Norway place their votes?

The interest-rate story in 2024 appeared to be clear cut as we entered the year fired up by hints from the Federal Reserve Chair Jerome Powell. At that point bond markets surged and would have expected one and maybe two cuts by now. Whereas we were told this over the weekend on Face the Nation. Bank of America’s prediction that the Fed will cut interest rates this year, but not until December, is…

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[notayesmanseconomics]

House prices in Australia continue to rise in spite of higher interest-rates

A feature of economic life of 2023 was supposed to be falling house prices. It is a relatively simple piece of economics that as the monthly expense of buying a house rises we should expect house price growth to slow and then prices to fall. So as central banks raise interest-rates and thereby raise mortgage rates we should be seeing house price falls. However if we look at a land down under we…

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[instantlymaximumblaze]

An important business

Master Plan Part 3 | Tesla Canada

Today, we are publishing Master Plan Part 3, which outlines a proposed path to reach a sustainable global energy economy through end-use electrification and sustainable electricity generation and storage. This paper outlines the assumptions, sources and calculations behind that proposal. Input and conversation are welcome.

[alphabetsoup-blogposts]

Forward Guidance*

Good Evening, Ladies and Gentlemen. I would like to begin by thanking the Association of Chartered Vocabulists and Lexicographers for their generous invitation to speak to you today in these beautiful surroundings. I shall speak tonight of numbers, large and small, but I do so humbly under the aegis of the ACVL shield and its motto: Les Mots Conquièrent Tout.

The inflation goal adopted by the Committee on Interest Rates is for total inflation, as you know, because food and energy prices are key for household budgets. But core inflation—which following the lead of Elon Musk, my team recently suggested should be called "Hardcore Inflation" (*pause for laughter*)—often gives a more accurate indicator of where overall inflation is headed. Twelve-month core inflation stands at 5.0 percent by our last estimate. Over the course of this year, core inflation rose a little and fell a little, but it has not abated. So when will inflation come down?

The truth is that the path ahead remains highly uncertain. For now, then, let's put aside the forecasts and look instead to the conditions we need to put in place to tackle the problem comprehensively.

For a start, we need to raise interest rates to a level that is sufficiently restrictive to cap demand. There is considerable uncertainty about what rate will be sufficient, although there is no doubt that we have made substantial progress, raising our target range for interest rates by several whole percentage points since March. As my statement last week indicated, we anticipate that moderate ongoing increases will remain appropriate. It seems to me likely that the ultimate level of rates will need to be somewhat higher than we previously thought. For now, I will simply say that we have more ground to cover but we must be measured in our pace.

Turning now to liquidity, the Bank has, in recent weeks made short-term funding available to wholesale market participants at unprecedented level. We considered that this was an appropriate step to take in view of the significant number of exogenous factors currently contributing to increased market volatility. In widening the liquidity window, we strived to guarantee the smooth functioning of the markets and support the transmission of monetary policy and we believe we have been largely successful in doing so. There are, however, always correlative costs and risks associated with the conduct of liquidity operations on this scale—not least among them the risk that a market flush with cash will be characterised by distorted asset prices in the short- or medium-term. For that reason, the Bank has determined that it will be appropriate to reduce the hours of operation of the New Monetary Framework liquidity window each week. The window will remain closed on Wednesdays during trading hours (900am and 400pm), for the foreseeable future. We believe this will allow us better to balance the twin financial stability objectives of both liquidity and risk-management.

This past week we have opened a new swapline denominated in Bolivares with the central bank of Venezuela. The amounts involved are still very small. We do expect that this facility will necessarily be called upon every day by market participants but we hope that it will provide support for the activities of institutions operating in South America who are also active in the London markets. We do not expect these arrangements to be impacted by changes to the New Monetary Framework

The situation is Venezuela and its impact on the London markets is a useful reminder that, in today's complex and interconnected financial system, problems can spread rapidly and lead to unexpected losses in a way that fails to respect either sectoral or geographic boundaries. For instance, we recently saw how exposure to interest rate risk in the United Kingdom, coupled with unprecedented large movements in rates, caused significant market disruption which reverberated in New York. Other recent examples of contagion, to name a few, include Russia's war of invasion; tensions with China; the financial meltdown of FTX; and severe labour market dislocations.

We are currently evaluating whether the analytical tools at our disposal reflect an adequate range of risks to institutions and markets. In addition, we are assessing the advantages of a number of new tools which might enable us to explore different sources of stress and to troubleshoot problems at an earlier stage. Becoming more sophisticated about the way we accommodate the interconnectedness and complexity of markets is the guiding aim of these initiatives.

The merits of our existing monetary policy tools and the need for new ones will be considered as part of our forthcoming holistic review. We're starting from a good place because the arrangements we have in place today are already stronger than ever before. I hope to have more to say about our review early in the new year.

History shows the deep costs to society when intervention is inadequate, misdirected or tardy, and this underscores the urgent need for the Bank to get both monetary policy and support for financial stability exactly right. In moving forward, we need to be humble about our ability fully to anticipate the risks but courageous in our determination to rise to them.

Thank you.

JP.

*usual disclaimer—fiction not fact. Also, pointedly derivative, see:

Speech by Vice Chair for Supervision Barr on why bank capital matters

In my first speech as Vice Chair for Supervision in September, I said that the Federal Reserve Board would soon engage in a holistic review

and

Speech by Chair Powell on inflation and the labor market

Today I will offer a progress report on the Federal Open Market Committee's (FOMC) efforts to restore price stability to the U.S. economy f

[alphabetsoup-blogposts]

Update

I think it is best if I don't attempt to reinstate my commitment to listen to Startuprad.io at 1230h in the weeks to come. There are a number of reasons for this but they are all to do with me and my need for greater flexibility.

As for German sources, I will undertake to listen to the latest 2min DW News podcast each day (in English), probably at 1.00pm—giving me a little more headroom in the morning to catch up with pre-recorded material. I would expect to find therein an average of two to three new words or phrases. Unfortunately there will be no opportunity for "driving" (for obvious reasons) but I consider that the advantages of easing the overall pressure outweigh the costs, in terms of accuracy.

I am still trying to locate an adaptable source in the Middle East. It is proving difficult for reasons with which I won't bore you but which are almost certainly personal to me and my situation. I may have to return to the search after addressing step three (identifying materials in South America).

Step four is ARA and I hope that, if and when we get there, it will remedy any deficit caused by my recent change of plans in northern Europe.

I have a number of large items to address on my personal agenda (house, job, visa...) in the near future and may need to take a few weeks out accordingly.

Thank you for your understanding.

[robinconomics-blog]

[Ph.D. View] Two monetary transmission channels: textbook view and new p...

[notayesmanseconomics]

The Bank of England has got itself in a pickle

The Bank of England has got itself in a pickle

Today is a Bank of England day of a different sort and it comes from this spoken by ones of its policymakers Gertjan Vlieghe on the 13th of this month.

Gertjan Vlieghe, an external MPC member, said his view on whether to keep waiting for an economic revival or vote to lower rates from 0.75 per cent to 0.5 per cent would depend on survey data released towards the end of January.

At this time this…

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