Exiting MPC member fires salvo at central bank’s decision making

Kristin Forbes, an external member of the Bank of England’s Monetary Policy Committee, has decided to leave the MPC with a blast at what she sees as the central bank’s unwillingness since Mark Carney became governor in 2013 to take courageous decisions to keep inflation under control.

Although she said she was not criticising individuals at the BoE, she complained on Thursday that senior staff were too busy to take monetary policy decisions sufficiently seriously and worried too much about bad press and their public profiles.

The intervention by Ms Forbes, who leaves the MPC at the end of the month, comes a day after Andy Haldane, the BoE’s chief economist, performed a U-turn on his previous position and said he was minded to back the case for raising interest rates. Ms Forbes supported a rate rise at the MPC’s June meeting, when committee members voted 5 to 3 for no change.

In a speech to the London Business School, Ms Forbes was trying to explain why central banks had left rates at emergency levels for nearly a decade after the financial crisis. The UK’s rate is currently 0.25 per cent.

Many of the reasons were related to weak economies and little inflationary pressure since the crisis, she said.

But she also criticised structural changes at central banks and specifically the BoE, which she said had made rate rises more difficult.

“As central banks have seen their remit expanded to include a broader set of considerations and have played a more public role, this could make them more hesitant to ‘Take away the punch bowl’ and make the difficult decisions that can be required to keep inflation stable,” Ms Forbes said.

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Part of the problem, she added, was the high public profile of central bankers, leading them to run for cover rather than take difficult decisions.

“Do central bankers today worry more about what could go wrong around the times that rates were tightened — even if any problems were not related to the increase in rates — knowing that they will be blamed nonetheless?” she asked.

Ms Forbes said UK evidence supported this concern since the MPC minutes in recent years have used the words “downside“ and “risk” more often even than in the 2008-09 financial crisis.

“Over my term on the MPC, we have been much quicker to adjust monetary policy in response to downside risks than upside,” she added.

“We adopted a large stimulus package in August due to concerns that the economy might weaken substantially — not waiting for hard data. Then the economy outperformed for much of a year, yet today a majority of the committee still does not support a recalibration of this stimulus.”

Part of the reason for MPC members covering their backs, she added, was an overload of work for senior BoE officials who have to worry about monetary policy, financial stability, banking regulation, banknotes and the orderly operation of financial markets.

“As an external member of the MPC, I only have the responsibility to one committee — and there are some weeks that it is hard to keep up with just that workload,” Ms Forbes said.

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“There is little chance for those with a myriad of responsibilities to pursue their own thinking or analysis on issues specific to monetary policy — making it harder to challenge the baseline analysis presented by staff.”