Back
11 Feb 2014
Flash: Carney isn't blameless - BBH
FXStreet (Guatemala) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman sights mistakes at the BoE.
Key Quotes:
" Carney and the BOE are not blameless. Recall that the type of forward guidance Carney had adopted at the Bank of Canada was date-specific. He had anticipated excess capacity (or output gap) would be closed a few quarters out and that the removal of accommodation would be necessary."
"At the BOE, he anchored the forward guidance to data as did the Federal Reserve. Both specifically cited the unemployment rate. This is a mistake because the unemployment rate is regarded as a lagging indicator, has little to do with the overall economy, and more importantly, with inflation."
"Regardless of the unemployment rate, the labor market cannot be considered tight if wage growth remains weak. Given its mandate, the Federal Reserve has a better justification for using the unemployment rate as a threshold. The Fed has repeatedly signalled that rates will remain low until well after the unemployment rate falls below 6.5%."
Key Quotes:
" Carney and the BOE are not blameless. Recall that the type of forward guidance Carney had adopted at the Bank of Canada was date-specific. He had anticipated excess capacity (or output gap) would be closed a few quarters out and that the removal of accommodation would be necessary."
"At the BOE, he anchored the forward guidance to data as did the Federal Reserve. Both specifically cited the unemployment rate. This is a mistake because the unemployment rate is regarded as a lagging indicator, has little to do with the overall economy, and more importantly, with inflation."
"Regardless of the unemployment rate, the labor market cannot be considered tight if wage growth remains weak. Given its mandate, the Federal Reserve has a better justification for using the unemployment rate as a threshold. The Fed has repeatedly signalled that rates will remain low until well after the unemployment rate falls below 6.5%."