Mark Carney: central banks not to blame for rising inequality

Mark Carney was on rather jolly form as he faced MPs today, perhaps happy that the issue of his term length was finally resolved last month. But what did we actually learn?

1) Central Banks are fighting their corner, as TrumpWorld approaches.

Carney was repeatedly adamant that central bankers aren’t responsible for the income inequality and low growth that has helped to drive Donald Trump to power, and also helped to cause Brexit.

He insisted that broader issues are in play, and only politicians can fight them, saying:

I think it is very important to distinguish between the stance of monetary policy and the reasons why global interest rates are low, the reasons why inequality have increased across major economies.

The last two are caused by much more fundamental factors and an excessive focus on monetary policy in many respects is a massive blame deflection exercise.

Donald Trump argues that his tax cuts and infrastructure spending plans will actually have an effect here, creating the conditions for higher growth and borrowing costs.

Carney may be offer his US counterpart, Janet Yellen, a lifeline — given Trump’s warning that he won’t offer her a second term at the Fed.

Central bank independence looks shaky; Carney is reminding us that central bankers have been clearing up quite a mess since 2008.

2) Carney won’t be swayed to stay longer

We can safely assume now that governor will flying back to Canada in July 2019 to be reunited with his family.

Even if Brexit turns into a dogs dinner, and isn’t finished by March 2019, Carney won’t do more than the extra 12 months he signed up for.

There is a practical reality, which is I’ll be separated from my family for that extra period of extension so there are limits, reasonable limits to what that would be.

I will leave June 30th 2019.

3) Don’t get used to falling inflation

Carney was reminded that inflation surprisingly fell this morning, to 0.9%. His message — don’t expect prices to remain low in 2017, given the pound’s weakness.

Inflation is going up.

The pass through from a 20 percent fall in the trade weighted level of sterling is going to come,it’s going to build towards the end of this year into 2017 and in our expectation, be above 2 percent by the middle of 2017 and stay there for a while because of that pass through.

4) Businesses are getting the Brexit jitters

A Bank survey has found that 45% of Uk firms have seen their investment plans affected by Brexit; half of those companies have put spending plans on ice.

And Carney also predicted that financial firms could start triggering their contingency plans when there is 18 months to go until Brexit, if they don’t like the look of the new deal.

He said:

If the time to exit is measured in 18 months or less and the degree of exit is viewed as considerable then a number of those firms would take decisions, that’s the best guidance I can give.

5) The Bank of England’s Christmas Party will be a cracker

Jacob Rees-Mogg MP has pushed for Mark Carney to get the sack, so it’s nice to see that the two men have made up.

The governor has invited one of his sternest critics to the Bank’s swanky Christmas bash, along with the rest of the committee too (chairman Andrew Tyrie is planning to drag along a few officials too, so the Bank had better lay on extra nibbles).

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