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

Share

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.

READ MORE:
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

Solutions Architect - Permanent - London - £70k DOE

£60000 - £70000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

General Cover Teacher

£110 - £130 per day: Randstad Education Reading: Great opportunities for Cover...

Maths Teacher

£110 - £130 per day: Randstad Education Reading: QTS Maths Teachers needed for...

Maths Teacher

£110 - £130 per day: Randstad Education Reading: QTS Maths Teachers needed for...

Day In a Page

Read Next
The bustling Accident & Emergency ward at Milton Keynes Hospital  

The NHS needs the courage to adapt and survive

Nigel Edwards
 

Letter from the Sub-Editor: Canada is seen as a peaceful nation, but violent crime isn’t as rare as you might think

Jeffrey Simpson
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?