Osborne’s Reverse Ferret on Gilt Yields
I’m still catching up, and I didn’t see anybody pick up on this. Team Osborne have long been champions of the “low gilt yields” ⇒ “confidence in government policy” ⇒ “austerity is successful” logic. But read Osborne’s Mansion House speech, my emphasis:
And this brings me to the important question of how monetary policy should balance the ongoing need for stimulus with emerging signs of recovery.
Each step along the path must, without question, be for the judgment of independent central banks including our own. The sharp jumps in bond yields we’ve seen in too many countries in recent years have been a sign of confidence departing.
But if the recovery gathers strength then a steady rise in bond yields across the largest developed countries will be a sign of confidence returning.
The recent turbulence in financial markets has emphasised the vital importance of clear communication.
There is a risk that poor communication could lead to stimulus being inadvertently withdrawn too soon.
More clarity about the future path of interest rates could help keep financial markets more stable.
I don’t think Osborne has ever before claimed before that gilt yields are positively correlated with “confidence”. This is a welcome development, but it does make a mockery of what he said before. It is also interesting that the Chancellor is so openly – and apparently successfully – guiding the MPC towards “Plan Woodford”.
(Yes, “Reverse ferret” is a much better phrase than the clichéd “U-Turn”.)