Mark Carney quizzed by MPs
Britain's next central bank chief answers questions on how he plans to fix the country's stagnant economy
- Read our latest wrap on Mark Carney's Q&A with the Treasury Committee - Carney sets high bar to changes in BoE goal
- Carney faces Treasury Committee
Good morning, and welcome to our live coverage of future Bank of England chief Mark Carney's face-off with MPs on his plans to resurrect the struggling British economy. We'll be live blogging the three-hour session, and you'll also be able to watch a live stream on this page.
- Carney takes centre stage ahead of Bank of England job
Reuters' William Schomberg previews Carney's appearance in front of the panel of MPs.
Britain's next central bank chief, Mark Carney, gets his first chance to show how he plans to fix the country's stagnant economy on Thursday, with expectations running high that the Canadian is set on change at the Bank of England.
Carney, the first foreigner to run the bank in its 318-year history, faces a three hour question-and-answer session with MPs that could also signal how he will bring his banking expertise to bear on Britain's crisis-hit banks.
After taking over at the Bank of Canada in 2008, Carney earned a reputation for successfully protecting his home country from the global financial crisis and he now faces the bigger challenge of getting Britain out of a rut of almost zero growth.
His new boss, Chancellor George Osborne, hailed the 47 year-old former Goldman Sachs banker as "the outstanding central banker of his generation" when he made the surprise announcement in November.
Since then, Carney's various comments on policy have been seized upon as signals of what he plans to do when he takes over at The Bank on July 1, although he will be only one of nine interest rate setters.
- Economics Editor Mike Peacock also looks ahead to Carney's testimony. He sends us these comments:
The Bank of England will do nothing at its policy meeting today, having created money equivalent to nearly a quarter of UK GDP, although it may say something about what it might do with the proceeds from some of the first gilts bought under QE which are now maturing.
But there is a highly significant debut by Bank of Canada chief Mark Carney, soon to take over the UK bank, testifying to a parliamentary committee for up to three hours. Carney has already ruffled feathers by suggesting inflation targeting (a sine qua non for British central bankers) might not be as efficacious as targeting nominal GDP. There’s very little chance of that sort of policy shift, and Carney has already backed off, but it’s clear that he is going to be very much a new broom who will look at alternative policy options, including maybe a more flexible inflation target and an indication of how long rates will stay at rock bottom. He certainly embarked on a root-and-branch organization revamp of the Bank of Canada when he took the helm in 2008.
As head of the Financial Stability Board – the global financial risk watchdog – Carney’s views on bank regulation, soon to be returned to the Bank of England, will also be interesting.
Spotlight on Mario Draghi at Thursday's ECB meeting with strength of Euro under scrutiny & BoE’s next Governor, Mark Carney, makes his eagerly awaited debut.
Really important day-Mark Carney who'll be most powerful unelected person in UK in front of MP s— Laura Kuenssberg (@ITVLauraK) February 7, 2013
Currently sitting in press pen with rest of the UK’s econ reporters waiting for Carney testimony to start. We’re worried we’ve bn forgotten— Ed Conway (@EdConwaySky) February 7, 2013
Mark Carney hasn't even started the job yet but the new BoE Governor is already acting like a rock star: keep the crowd waiting...— Russ Lynch (@russ_lynch) February 7, 2013
Worth remembering that whatever Mark Carney says about monetary policy today, he will be 1 member of 9 on MPC, so cannot dictate policy.— Andrew Sentance (@asentance) February 7, 2013
- Has Mark Carney had second thoughts? The MPs are in their seats, we just need to future BoE governor to show up so we can get started.
- UK December industrial output tops forecast after weak quarter
Olesya Dmitracova and Patrick Graham report:
British industrial output rose more than expected in December, although oil field shutdowns drove the biggest quarterly fall since early 2009, data showed on Thursday.
Within that, manufacturing output climbed 1.6 percent on the month in December after a fall of 0.3 percent in November, the Office for National Statistics said.
Industrial output, which includes energy production and mining, grew 1.1 percent after a revised 0.2 percent monthly rise in November.
- Finally... here he is. Off we go
- Who's on the Treasury Committee? Here's a full list from the Parliament website:
Mr Andrew Tyrie (Chairman) - Conservative
Mark Garnier - Conservative
Stewart Hosie - Scottish National Party
Andrea Leadsom - Conservative
Rt Hon Pat McFadden - Labour
Mr Brooks Newmark - Conservative
Mr Andy Love - Labour Co-Operative
John Mann - Labour
Mr George Mudie - Labour
Jesse Norman - Conservative
Teresa Pearce - Labour
Mr David Ruffley - Conservative
John Thurso - Liberal Democrat
- Carney says decisive reasons for taking the job were shorter, five-year term and Bank of England Deputy Governor Charlie Bean's agreement to stay on for an extra year to help transition
- Carney says his decision to take the job was driven by the demands of his daughters. Tyrie says this is a novelty. Does Tyrie have any daughters?
- In writtent testimony to the Treasury Committee, he seems to be edging away from radical policy moves -- says bar to changing monetary policy structure is high. However, does say "flexible" inflation targeting proven to be the best framework. A suggestion he would like more leeway from the government??
- We have moved into a new touchy-feely world, when the head of a central bank feels free to discusses his daughter's integration into secondary school as a reason for changing his mind about applying for a job. I can't decide whether this is a sign of progress in society or an alarming unwillingness to put duty first.
- Carney has also submitted written evidence to the committee. Here's a link to his answers in full, but my colleagues are also going through it to bring you the best bits.
- And while the Select Committee is dealing with these rather tedious housekeeping issues, you might like to read this Breakingviews curtain raiser published the other day by my learned colleague Edward Hadas. www.breakingviews.com
- Despite the publicly expressed doubts of some existing Bank of England rate setters, Carney says there is merit it in giving "extraordinary forward guidance" on where interest rates are going ... or not going.
- Asked about his 250,000 pounds housing allowance, Carney points out: "My pay and pension is equivalent to the pay and pension of the current governor."
- Like any good central banker should, Carney is fully apprised of London house prices. A 250,000 pounds a year annual allowance should cover it.
- Asked if he took the job because he has political ambitions in Canada, Carney points out that taking one of the toughest jobs in central banking in a country that is not Canada, shows that he does not.
- Chairman of the committee Andrew Tyrie asks Carney to compare his "consensus based" management style with incumbent Mervyn King. Carney says he has always found King's style in meetings to be "consensual".
Carney is in for a shock when he gets to the BOE and finds that there has not been a consensual style of govt since Eddie George left— Danny Blanchflower (@D_Blanchflower) February 7, 2013
- Carney: To be effective, BoE Governor's responsibilities have to be delegated and shared. Close coordination between BoE's MPC and FPC, and FPC and PRA will be important.
- Not that football pay comparison again. Please. The more interesting observation, I think, is about nationality. And contrary to received wisdom it seems far more "right" to insist on an English manager of the soccer side than insist on a Brit at the Bank of England. Why? The soccer side is clearly a nationalistic endeavour. The Bank has global responsibilities. Full disclosure: I know next to nothing about football. And care less.
- Some reactions to Carney's appearance and statement:
ANNALISA PIAZZA, NEWEDGE STRATEGY
"Some of Carney's comments suggest that he favors some changes in the BoE's policy framework. Nevertheless, we rule out that changes will be abrupt as he sounds very keen on maintaining confidence in the institution credibility."
BRIAN HILLIARD, SOCIETE GENERALE
"I've looked at the monetary policy part, section seven. He's saying that it's sensible to review the policy framework periodically. That's quite interesting."
PETER DIXON, COMMERZBANK
"My initial reaction is that much of it is really suggesting what central bankers around the world have already talked about, in other words price stability is the main thing to focus on.
"He says I have not made an assessment of the merit of altering the monetary policy framework, so obviously he retains an open mind as to where we go from here.
"One thing that people talked about ahead of the hearing was his views on nominal GDP targeting, and he says well yes it's an option in the event that interest rates need a bit more traction, so he's not ruling anything out or ruling anything in.
"So it's a fairly balanced, actually very detailed and very good assessment of many of the problems facing the UK."
- And here are some highlights from his written testimony:
BAR TO CHANGING POLICY
The benefits of any regime change would have to be weighed carefully not only against the potential risks but also against the effectiveness of other unconventional monetary policy measures under the proven, flexible inflation-targeting framework. Although the bar for change to any flexible inflation-targeting framework should be very high, it seems to me important that the framework for monetary policy-rightly set by Governments and not by central banks-is reviewed and debated periodically."
"When conventional monetary policy has been exhausted at the ZLB (Zero Lower Bound), the additional stimulus that is likely to be called for is impossible to achieve using the conventional interest rate tool. Extraordinary forward guidance is one unconventional policy tool, along with quantitative easing and credit easing."
"To achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, inflation picks up. Market participants may doubt the willingness of an inflation-targeting central bank to respect this commitment if inflation goes temporarily above target. These doubts reduce the effective stimulus of the commitment and delay the recovery."
"What matters to these asset prices, however, is not so much the current setting of the policy interest rate but, rather, its expected path over time. Thus monetary policy affects the economy primarily through policy-rate expectations.5 The more those expectations are aligned with the policy path necessary to achieve the policy objective, the higher the probability the policy objective will be achieved."
"To exploit fully the power of this framework, guidance about future policy actions, leveraging central bank communications, may be effective."
NOMINAL GDP TARGETING
"In theory, committing to restore the level of nominal GDP to its pre-crisis trend could raise expected inflation over the short and medium term but keep longer-term expectations well anchored. That would reduce real interest rates for a time, providing added stimulus to the economy."
"However, when policy rates are stuck at the ZLB (zero lower bound), there could be a more favourable case for NGDP level targeting. The exceptional nature of the situation, and the magnitude of the gaps involved, could make such a policy more credible and easier to understand."
"The main drawback of an NGDP level target in this regard is that it imposes the arbitrary constraint that prices and real activity must move in equal amounts but opposite directions. As potential real growth changes over time, either the nominal target will have to change or else it will force an arbitrary change in inflation in the opposite direction. The challenge of determining the UK's potential growth rate at present highlights that this is not an academic concern. Another consideration is that statistics like nominal GDP are subject to revision, and these revisions can be large."
HIGHER INFLATION TARGET
"In my view, moving opportunistically to a higher inflation target would risk de-anchoring inflation expectations and destroying the hard-won gains that have come from the entrenchment of price stability. Moreover, if inflation is both higher and more uncertain, a higher inflation risk premium might result, prompting an increase in real rates that would exacerbate unfavourable debt dynamics across public and private borrowers."
PRICE LEVEL TARGETING
"PLT may merit consideration as a "temporary" unconventional policy tool in countries faced with extraordinary circumstances, notably those with policy at the ZLB and with a heavy burden of debt. However, it also relies on inflation already having undershot the long-run target so that the price level is today below trend. That is not the case in the UK, where price pressures since the onset of the financial crisis have not, in fact, been weak."
MONETARY POLICY FRAMEWORK
"In my view, flexible inflation targeting-as practiced in both Canada and the UK-has proven itself to be the most effective monetary policy framework implemented thus far. As a result, the bar for alteration is very high. In any possible review, it would be vital to recognise that long and varied experience demonstrates that delivering price stability is the best contribution that monetary policy can make to the economic welfare of citizens.
"I have not made an assessment of the merits of altering the monetary policy framework in the UK, and of course any change to the Monetary Policy framework would be the sole responsibility of HM government. I do think, however, that it is important that the policy framework is reviewed periodically."
- Carney: "The Bank of England will make mistakes, all institutions make mistake."
#carney has faced some hostile questions on his pay, but so far is charming MPs. They like his more direct approach to answering questions— Chris Giles (@ChrisGiles_) February 7, 2013
- Time to wake up. He is on to Monetary Policy....
- Flexible inflation targeting is the most successful framework...but debate should be encouraged....that is a central (albeit paraphrased by me) statement, surely.
- Carney says there seems to be an appetite for debate about the BoE framework, and this should be encouraged
- We've gone through Carney's lengthy written testimony. Ineresting stuff. He sets a high bar for fiddling with the Bank of England's remit but said the question should be asked periodically. Doesn't rule out nominal GDP targeting but not keen on higher inflation target or targeting price levels. In a nutshell, he's prepared to think the unthinkable but maybe not to do it ... yet anyway.
- Carney: There needs to be 'buy in' on how long the BoE takes to return inflation to target.
- Carney: I fully imagine during the course of my term I will be outvoted at times
- Carney: 12 MPC meetings a year "verges on too many"
- Carney has sometimes been described as an abrasive character but this is an unruffled performance which shows command of detail and a bit of humour. Was never likely the politicians were going to monster him on his debut but they seem completely disarmed nonetheless.
- Carney says he believes the best framework continues to be flexible inflation targeting, and that he does not start from a position of believing a Fed-style dual mandate should be pursued.
- Carney: If more stimulus is required while he is in office, he will do his best to persuade other MPC members.
- A remarkably conventional set of ideas from Carney. It makes me wonder why he was so coveted by Osborne...
- Meanwhile, the Bank of England holds interest rates at 0.5 percent, and leaves QE asset purchase total unchanged at £375 billion.
- Commenting on the BoE's decision to sit tight on monetary policy, Katja Hall, CBI Chief Policy Director says:
"With business surveys showing some strengthening in activity, change was unlikely this month.
"We expect fairly subdued conditions to continue in the coming months, so unless the economy falters, monetary policy seems likely to stay on hold."
- Asked about QE, Carney says that evidence from the Bank of Canada shows returns from QE decreases as the scale of QE is increased.
- Carney: Bank of England should continue to review possibility of buying assets other than gilts.
- Carney: I cannot see a circumstance where I would support 'helicopter money'. The BoE has considerable flexibility within existing tools if more stimulus is needed.
Moving on to the eurozone #Carney says "I think we're moving from an acute phase to chronic phase." Still pretty bad then.— Bec Clancy (@becclancy) February 7, 2013
- The Treasury Committee stops for a break. Yup, looks like we're only half way through folks. We'll be right back.
- They're back, here we go for round two...
- Carney says he does not know if it would be better to break up RBS and Lloyds. Improving banking competition in the UK is extremely important
- Carney: RBS's behaviour related to Libor fixing should be prosecuted to full extent of the law.
- Apologies for the loss of the live feed there folks. Minor technical problem, we should have it up and running again shortly.
#Carney disagrees that Canadian banks are embroiled in scandal— Lisa Botter (@l_botter) February 7, 2013
- Here are some Carney quotes on British banks:
RBS'S BEHAVIOUR RELATED TO LIBOR
"The behaviour that's been exhibited and confirmed this week particularly around for example Libor is reprehensible and should be prosecuted to the full extent of the law in the various jurisdictions that are affected."
IMPROVING UK BANKING COMPETITION
"Without question, competition measures to improve competition in financial services including in this country are extremely important. There are some measures this committee has focused on that have been taken up this week by the chancellor and that would appear to be welcome and I am sure there are other measures that can be taken."
ON POSSIBLE BREAKUP OF RBS AND LLOYDS
"Do you think they need two state-owned or primarily state-owned banks, will be better if they're broken up and if so do you intend to press for that?"
"With respect to the direct question, I don't know is the honest answer. I haven't looked at the particular circumstances of either of those two institutions and the relatives merits of economies of scale, scope that would be necessary, the valuation that could potentially be achieved and the ultimate interests of taxpayers."
- comment by Financial Times via twitter 2/7/2013 1:48:22 PM
Three and a half hours in, Andrew Tyrie has shattered audience hopes by saying we’re going to have to wrap up soon #Carney— Ed Conway (@EdConwaySky) February 7, 2013
- And that is indeed the end of future BoE governor Mark Carney's hearing in front of the Treasury Committee. Quite the marathon session, that.
- And that brings our live coverage to a close for today, thanks for following.
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