Oh, You Want Flexible? We Can Be Flexible!
James Zuccollo provides a good write-up of Carney at the TSC. Carney was very consensual and was avoiding controversy, as you’d expect. My expectations were slightly too high, so I came out a little disappointed; Carney did provide a decent defence of NGDPLT but made it clear that he was strongly attached to flexible inflation targeting, and if anything was emphasizing the need for more “flexibility”.
The highlight for me was when Carney mentioned almost in passing the correct figure for the UK’s nominal GDP “gap” (the difference from trend) at 15% – I didn’t see him refer to notes, he just knows the data. That is excellent! Scott is surely right that NGDP will never again be forgotten – that’s progress at least.
Meanwhile, back on the farm, the MPC produced an unusually long statement after the conclusion of this month’s MPC meeting today. Key quote:
CPI inflation is likely to rise further in the near term and may remain above the 2% target for the next two years, in part reflecting a persistent inflationary impact both from administered and regulated prices and the recent decline in sterling. But inflation is expected to fall back to around the target thereafter, as a gradual revival in productivity growth dampens increases in domestic costs and external price pressures fade.The Committee discussed the appropriate policy response to the combination of the weakness in the economy and the prospect of a further prolonged period of above-target inflation. It agreed that, as long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation. Attempting to bring inflation back to target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term. The MPC’s remit is to deliver price stability, but to do so in a way that avoids undesirable volatility in output. The Committee judged that its policy stance was fully consistent with that remit. The Committee agreed that it stood ready to provide additional monetary stimulus if warranted by the outlook for growth and inflation.
Is somebody feeling a little bit defensive? Why would they feel the need to emphasize that their policy is “fully consistent with [the] remit”?
It will be interesting to see the new forecast data after the quarterly Inflation Report next week; the claim that inflation “may remain above the 2% target for the next two years” is quite specific; the forecasts from November were much lower. But it’s a good way to make clear how flexible you can be!
Flexible IT had a bad day today. The hot topic in Parliament was the new kid in town with his bright new idea, NGDPLT. The Old Lady of Threadneedle Street is feeling the heat – at last!