Like the NFL, the Monetary Policy Committee is recruiting players who could sink or swim

New recruits on the MPC have been put on the spot by the Governor’s warning on rates


The National Football League conducts an annual draft, otherwise known as the player selection meeting, where teams select the best college players. The position taken by the 32 teams in the drafting order is in reverse order relative to its record in the previous year, so the Super Bowl winning team goes last.

We have no idea how well these draftees will perform. Many first round picks are terrible failures. Some turn out to be stars like Eli Manning from the New York Giants. The Patriots’ great quarterback Tom Brady, who has three Super Bowl rings, was the 199th pick in the sixth round of the 2000 draft.

This year there was special excitement in my family when the Pittsburgh Steelers picked a Blanchflower, Rob that is, but no relation. My kids decided I needed the shirt and visited the Steelers’ website only to discover the cheapest available was $150.

Needless to say, I am still waiting.

The NFL draft hasn’t been the only one picking talent over the last month or so. Central banks have been at it too. Stan Fischer, Lael Brainard and Loretta Mester are new voting members on the US Federal Open Market Committee. Andy Haldane joined the Monetary Policy Committee this month. Kristin Forbes joins next month while Nemat Shafik joins in August.

The arrival of all this new talent makes it very hard to understand forward guidance. We just don’t know how these rookies will perform. Are they hawks or doves? We probably won’t find out for a while as they take time to become acclimatised and work out which way is up.

Given the change in the composition of the MPC it was rather surprising that Mark Carney in his Mansion House speech warned that interest rates could rise “sooner than markets currently expect”. Presumably that comes as news to the new members of the MPC who will actually get to vote on any interest rate rise but who wouldn’t have been consulted.

The reality, though, is that such a tightening is now less necessary given the pound has risen to above $1.70 alongside a rise in the yield curve, which has made borrowing more expensive.

The market is now expecting a rate rise in October 2014, which in my view looks totally bonkers given the continuing falls in real wages and the large amount of labour market slack that still exists in the UK economy. It’s unclear why Mr Carney said this given the changes in composition of the MPC. He must have known it would send markets into a tizzy. Or maybe he didn’t?

There was much comment in the media that there was a high probability that one or more members of the MPC would have voted for a rate rise at the June meeting.

Top of the list was the chief hawk Martin Weale, who in the end went along with everyone else arguing for no change. But he did produce an interesting speech in Belfast on the day the minutes were released when he calculated that, over three years, wage growth would pick up to 4 per cent from its current 0.7 per cent.

Mr Weale sensibly concludes: “There is the continuing unusual weakness in wages and a question of what signal should be drawn from that. It may well imply that there is rather more spare capacity in the economy than the committee has assumed. Should wage growth fail to revive, that will on its own tip the scales further in favour of maintaining a strong monetary stimulus.” Agreed.

Someone should tell Lady Gaga that porno-chic is out
Don't blame foreign players for England's demise at the World Cup
When will Britain admit to its alcohol problem?

I don’t share Mr Weale’s view that wages are set to grow at 4 per cent but I certainly agree that the data will speak and policy will have to follow. The differences between our views are large but I concur with his conclusion that these are tough judgement calls.

It’s hard to disagree with this statement from his speech: “I certainly do not want you to think that there is any definitive answer about what to draw from this; it is, as always, a matter of judgement.”

The fact that monetary policy is data dependent and not time dependent was made clear by the US Federal Reserve’s chair Janet Yellen at the press conference following the meeting last week which voted for asset purchases of $35bn a month.

The Fed is following the data and any interest rate rise will not come “for a considerable time”. The amount being purchased has been tapered by $10bn a month again but we should note that, in contrast to the MPC, they are still adding stimulus, despite a recent upward tick in inflation in May 2014.

















The above table shows the central tendency of the economic projections of the FOMC, which excludes the three highest and three lowest projections for each variable in each year. The FOMC has lowered its growth projection for 2014 compared with March. It expects inflation to remain below the target and sees low to moderate growth, with the economy remaining well above full-employment. In the minutes of the meeting it was also pointed out that: “Low nominal wage inflation was also viewed as consistent with slack in labor markets”. Nominal wage growth in the US is 2 per cent and real wages haven’t grown at all over the last year.

The Fed is continuing with tapering its asset purchase programme and only after that will it consider a rate rise. UK real wages are falling faster, unemployment is higher and inflation is lower than in the US. Although growth is stronger, they don’t have a house price bubble. I have no clue why the MPC would want to raise rates first in what is, essentially, quantitative easing wars. Blink and you lose.

If I’m right, the Bank of England should send me the Blanchflower shirt.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Lettings and Sales Negotiator - OTE £46,000

£16000 - £46000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Home Care Worker - Reading and Surrounding Areas

£9 - £13 per hour: Recruitment Genius: This is a great opportunity to join a s...

Recruitment Genius: Key Sales Account Manager - OTE £35,000

£25000 - £35000 per annum: Recruitment Genius: Have you got a proven track rec...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

Read Next
David Cameron visiting a primary school last year  

The only choice in schools is between the one you want and the ones you don’t

Jane Merrick
Zoë Ball says having her two children was the best thing ever to happen to her  

Start a family – you’ll never have to go out again

John Mullin
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn