George Osborne Correctly Rejects Fiscal Stimulus
George Osborne explained the Sumner Critique to the CBI tonight:
What’s more, without allowing inflation to climb even further above target, a fiscal stimulus three years ago would simply have been offset by less supportive monetary policy, with no net impact on demand.
With the independent MPC judging that the risks to inflation and output are evenly balanced, the same is true today.
So, just as the argument for fiscal stimulus three years ago was mistaken, so is the suggestion for a discretionary fiscal loosening now. Because we have sensibly allowed the automatic stabilisers to operate, our deficit is only just falling in nominal terms.
This is an improved version of the wording Osborne used last time. Pedantically correct wording, noting the forward-looking nature of monetary policy.