Expect anything: the moral of today's minutes
When he appeared before the Treasury Select Committee back in February, Mark Carney was asked whether he was prepared to be outvoted when he sat on the Monetary Policy Committee.
“Yes,” he responded. “I would like to be on the right side more often than not; but obviously I would fully imagine that over the course of my term I would be outvoted.”
There was rather a lot of speculation that that moment might have come in his very first meeting. After all, Sir Mervyn King had been outvoted (he wanted more quantitative easing) at every one of his five final MPC meetings, and many speculated that Carney was in favour of more stimulus as well. And given there were two other MPC members voting for more QE at those meetings too, it looked more likely than not that the new Governor would have had to have chosen between two camps.
Well, perhaps it’s a sign of his persuasiveness or perhaps of the pusillanimity of the rest of the MPC, but somehow Carney has managed to generate precisely the kind of consensus he used to enjoy in Canada. Minutes released this morning showed that all nine members of the MPC voted in favour of unchanged monetary policy this month – the first unanimous vote since October last.
So what are the implications of this? On the one hand, investors might well assume this is a sign that Carney is rather less dovish than they had presumed (eg less keen to stimulate the economy further). And indeed, in the wake of the release of the minutes the yields on 10-year government bonds – a key indication of expectations of future interest rates – rose sharply higher.
However, it becomes far more difficult to construe these minutes as hawkish once you’ve examined the final paragraph, which is worth quoting at length:
An expansion of the asset purchase programme remained one means of injecting stimulus, but the Committee would be investigating other options during the month, and it was therefore sensible not to initiate an expansion at this meeting. 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.
What’s intriguing about this paragraph is how much it leaves open. Most observers had assumed that the main thing Carney would change would be the Bank’s policy on so-called “forward guidance” – whether it will give a signal of where it will put rates in the future. However, this passage seems to suggest that other policy options are on the table – perhaps buying up assets beyond gilts, for instance.
The one thing it does seem to imply, however, is that the common-or-garden policy the Bank has been pursuing for the past four and a bit years – whereby it buys up government debt by creating money – may have run its course. In future, the Bank will be looking for other, more innovative ways to stimulate the economy. We’ll learn more about what they might be in the Inflation Report early next month.