Mark Carney has the central banking equivalent of rock-star status. When he joins the Bank of England as the 120th governor on Monday, he brings with him high hopes of a new radicalism at an already radically reshaped institution.
Not only has the Old Lady’s remit been vastly expanded by the creation of the Prudential Regulation Authority (which took over from the now-defunct Financial Services Authority in April). Mr Carney has also signalled his appetite for unconventional monetary policy, in particular the notion of “forward guidance”, to give interest-rate changes extra economic oomph. Cue much anticipation, from the Chancellor downwards.
Yet, for all the razzmatazz at the first changing of the monetary guard for a decade – and the first foreigner ever in the top job – it is as well not to become too starry-eyed. True, Mr Carney is credited with considerable successes during his governorship of the Bank of Canada. But while the Canadian economy did indeed weather the storms of the 2008 crisis better than most – avoiding bank bailouts and returning swiftly to growth – monetary policy can claim only some of the glory. The country’s healthier banking sector, sounder government finances and exposure to soaring global commodities prices were equally, if not more, influential.
By coincidence, Mr Carney comes to Britain just as global monetary policy is shifting. After five years of ultra-looseness, the tide is beginning to turn, and the question is no longer if money supplies will be tightened, but when.
The path will not be an easy one – as the markets’ flighty response to hints from Ben Bernanke at the US Federal Reserve this week makes clear. Mr Carney’s background working for Goldman Sachs may put him in a better position vis-à-vis banking regulation than his famously hostile predecessor. But his primary challenge will be the fine judgements about when to raise interest rates, and by how much.
Thus far, Mr Carney’s career has been marked by considerable good fortune. With the British economy showing signs of life at last – albeit tentative ones – perhaps his luck is holding. We can only hope so.