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Following in the footsteps of the Fed?
Every Central Bank knows it is going to have a problem unwinding the massive balance sheets that have been built up with their various credit easing programs. That deleveraging lies ahead and will be a drag on their economies for many years to come. It would appear that the Fed, the PBOC and now the BoE have decided that step one is to stop the problem (balance sheet) from getting bigger.
Could we be heading into another version of "the day the music died"?
From the FT:
Every Central Bank knows it is going to have a problem unwinding the massive balance sheets that have been built up with their various credit easing programs. That deleveraging lies ahead and will be a drag on their economies for many years to come. It would appear that the Fed, the PBOC and now the BoE have decided that step one is to stop the problem (balance sheet) from getting bigger.
Could we be heading into another version of "the day the music died"?
From the FT:
The Bank of England’s interest rate-setting committee signalled on Wednesday that it was retreating from quantitative easing as a means of stimulating the economy, preferring a more “mixed” strategy including guiding markets.
The minutes of the July Monetary Policy Committee meeting said that financial markets had prematurely withdrawn stimulus from the economy in June and the immediate priority for maintaining economic recovery was to counter these market moves.
The emphasis on guiding markets in the first set of minutes under new governor Mark Carney showed the BoE was moving away from QE as its preferred strategy.
Instead, the nine members of the MPC focused on guiding markets and voted unanimously to hold interest rates at 0.5 per cent and leave the stock of assets purchased under the quantitative easing programme at £375bn...
...The MPC noted that “market interest rates had risen sharply internationally” reflecting a change in perceptions over US monetary policy and the movement higher of short-term market interest rates “represented an unwelcome tightening in monetary conditions that, were it to persist, would risk hampering the emerging recovery”.
The main policy innovation in July’s meeting was that the MPC unanimously agreed to issue a statement to tell market participants these movements were “not warranted”. After a faltering start, markets have in recent days responded to the BoE communication.
Although the committee made it clear it was highly likely to introduce formal forward guidance on monetary policy after the August 1 MPC meeting, divisions still existed between those that want it to go hand in hand with further stimulus and those that think the recovery is sufficiently entrenched.
The majority of the MPC was in the latter camp, saying “the current policy setting was appropriate” at present, adding that “the onus on policy at this juncture was to reinforce the recovery by ensuring that stimulus was not withdrawn prematurely”.
These members are likely to support guidance over the likely exit path from QE and 0.5 per cent interest rates, ensuring that markets do not jump the gun. They believed developments in June suggested the recovery “was becoming more firmly established”.
A minority on the committee still worried that the economic recovery was too slow and more stimulus was required. But in a sign that QE was going out of fashion at the BoE with the departure of Lord King, former governor, these members said that “given the already large size of the asset purchase programme, there was merit in pursuing a mixed strategy with regards to the different policy instruments at the committee’s disposal”.
The minutes of the July Monetary Policy Committee meeting said that financial markets had prematurely withdrawn stimulus from the economy in June and the immediate priority for maintaining economic recovery was to counter these market moves.
The emphasis on guiding markets in the first set of minutes under new governor Mark Carney showed the BoE was moving away from QE as its preferred strategy.
Instead, the nine members of the MPC focused on guiding markets and voted unanimously to hold interest rates at 0.5 per cent and leave the stock of assets purchased under the quantitative easing programme at £375bn...
...The MPC noted that “market interest rates had risen sharply internationally” reflecting a change in perceptions over US monetary policy and the movement higher of short-term market interest rates “represented an unwelcome tightening in monetary conditions that, were it to persist, would risk hampering the emerging recovery”.
The main policy innovation in July’s meeting was that the MPC unanimously agreed to issue a statement to tell market participants these movements were “not warranted”. After a faltering start, markets have in recent days responded to the BoE communication.
Although the committee made it clear it was highly likely to introduce formal forward guidance on monetary policy after the August 1 MPC meeting, divisions still existed between those that want it to go hand in hand with further stimulus and those that think the recovery is sufficiently entrenched.
The majority of the MPC was in the latter camp, saying “the current policy setting was appropriate” at present, adding that “the onus on policy at this juncture was to reinforce the recovery by ensuring that stimulus was not withdrawn prematurely”.
These members are likely to support guidance over the likely exit path from QE and 0.5 per cent interest rates, ensuring that markets do not jump the gun. They believed developments in June suggested the recovery “was becoming more firmly established”.
A minority on the committee still worried that the economic recovery was too slow and more stimulus was required. But in a sign that QE was going out of fashion at the BoE with the departure of Lord King, former governor, these members said that “given the already large size of the asset purchase programme, there was merit in pursuing a mixed strategy with regards to the different policy instruments at the committee’s disposal”.
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