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Mark Carney's Quite Right - The Independent Bank Of England Is Independent

Mark Carney has had to point out the entirely obvious to the politiciansthat the Bank of England is in fact independent. And thus that the independent Bank of England does not take instructions from politicians. This is rather the point of

Mark Carney has had to point out the entirely obvious to the politicians–that the Bank of England is in fact independent. And thus that the independent Bank of England does not take instructions from politicians. This is rather the point of having that independence in the first place and some of us do recall what used to happen before this management structure was put in place. The chancellor would insist upon a nice decline in interest rates in order to generate a mini-boom before an election, the inflation from which would arrive well after said election.

It’s also true that this independence is an essential part of being in the European Union. Sure, we’re leaving, thankfully, but we’ve not gone yet. so, Bank independence will be maintained at least as far as the day of Brexit.

The Bank of England will not take instructions on its policies from politicians, its governor, Mark Carney, has said, just a week after Theresa May took a swipe at the impact of the Bank’s actions on “ordinary” people. Speaking at Birmingham town hall as part of the Bank’s Future Forum event on Friday, Carney said it became difficult for the Bank when politicians commented on its policies rather than its objectives.

He said politicians had done a “good job” of setting up the system in which the Bank operates, but added: “We are not going to take instruction on our policies from the political side.”

Quite so: the general setting of targets is a proper function of the political system. But the entire point of having experts in the system is that you leave the experts to achieve those that have been set. Around and about 2% inflation is one that has been set. Politics and politicians would be entirely justified in deciding to change that target–not that I think they should but it’s absolutely a respectable use of their power. But to then say that interest rates should be at this or that level–no, that’s the whole point of having the Bank there, to have the experts who will do their best to manage us to the stated goal rather than finding economic levers being pushed or pulled for other reasons.

 

In addition to the inflation outlook, doubts about BOE Governor Mark Carney’s ability to extend quantitative easing were reinforced at the Conservative Party conference, where Prime Minister Theresa May said ultra-loose monetary policies helped to widen inequality. The central bank has been buying gilts since August, with initial concerns over potential scarcity fading as the outlook for inflation picked up.

Well, yes, QE probably has widened one form of inequality. But that’s not a monetary problem and it is monetary policy which is devolved to the BoE.

Even here, Carney went on to say that the central bank was right in cutting interest rates to a historic low of 0.25% while introducing many other stimulus measures in August in the wake of the Brexit vote.

“Our judgment in the summer was that we could have seen another 400,000-500,000 people unemployed over the course of the next few years. We moved interest rates down to support the economy,” he had then explained.

This is exactly what the BoE is supposed to be doing. Balancing unemployment and inflation given the targets which have been set. Carney is entirely correct to state that the Bank won’t accept more detailed political instruction than those targets which have been set. It’s not just good policy it’s also against current law to do it any differently.

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