Creon Butler
Now, this has been a topic that every policymaker – economic policymaker has been focused on for the last 18 months or so, and if you, sort of, look back to a year ago, inflation in the US peaked at 9%, just above 9%, July 2022. It’s now back down to 3.2%. In other countries the performance hasn’t been quite as good, but over that period we’ve also seen the fed funds rate up to 5.5%. And we want to, today, to look at three main questions, firstly, what went wrong, secondly, what happens next, and thirdly, and this is the most important and the, sort of, focus of the discussion overall, what should we learn from this experience?
And to help answer these questions I have four brilliant panellists. In no particular order, Chris Giles, Economics Editor of the Financial Times. Chris joined – well, Chris became Editor – Economics Editor at the Financial Times in October 2004, where he covers global economics and UK affairs, and before that, before joining the FT, he worked at the BBC, Ofcom, and the Institute of Fiscal Studies. We also have, next to him, DeAnne Julius, Senior Advisor, and also my colleague and distinguished Fellow in the Global Economy and Finance Programme in Chatham House. And DeAnne Julius is a former Chair of Chatham House, and also is currently a Senior Advisor, and from 1997 to 2001 she was a Founder Member of the Monetary Policy Committee of the Bank of England, something I remember since I was working for her, or for the Monetary Policy Committee at the time.
And we also have, next to me, Dr Gerard Lyons, who’s Chief Economic Strategist at Netwealth, and among other roles, Gerard sits on the boards of both the Bank of China UK and the global brokerage firm, BGC Partners, and in previous lives he was Chief Economist at the Standard Chartered and also at Dai-Ichi Kangyo Bank. And finally, and by no means least at all, Bronwyn Curtis, who’s a non-executive member of the Office for Budget Responsibility. She served as Chairman of the Society of Business Economists and on the Council of the National Institute of Economic and Social Research, and she’s also been Head of Global Research at HSBC and Chief Economist at Nomura International.
This event is on the record and livestreamed and we’re going to have a discussion among ourselves here, initially, for around 30 minutes or so, and then we’ll move to the audience for Q&A. And when we do that, please, if you’re in the room, raise your hand and a mic will magically appear to help you answer – ask a question. And if you’re online, and we’re also being livestreamed, please put your question into the Q&A box and I’ll be able to pick it up here.
Okay, so let’s start with the first question, then. Chris, maybe I can come to you first of all. So, what went wrong, was it a forced or an unforced error by central banks, or something more complex?
Chris Giles
Well, I think it’s slightly more complex, but we should get the, sort of, factual things out of the way first. So, it started in 2021, the inflation. At that time, we were recovering from the COVID crisis. We saw a rapid inflation in goods prices globally. So, there’s some global things happened, goods inflation, globally associated with supply chains not working, and a lot of demand for goods as we weren’t able to spend on services. That was followed, also globally, by oil prices rising in late 2021/early 2022, those were global, and then I think on top of that, if you look at the US, you have to add in very loose fiscal policy through 2021 and 2020. So, the US way of supporting the economy through COVID was to give people lots of money in cheques and those – and that money, as was recognised by a large amount of the economics establishment in the US, was probably excessive in 2021.
In Europe it was exacerbated by the natural gas crisis of last year, which was – came from Russia’s invasion of Ukraine, which was not seen in the US. So, 11 times normal prices for wholesale gas prices this time last year, that was an extraordinary thing that European economies had to deal with, and in emerging markets, in particular, where food is a big part of budget shares, the food price increases of last year were very important in inflation.
So, that’s what differs around, more demand in the US, but some global shocks, and the other thing that was common globally was complacency in the central banks. I think that they didn’t think this would turn into a wider inflation problem and they thought the shocks were temporary, and they were more persistent than that.
Creon Butler
And DeAnne, do you agree with that analysis, or is there anything else you might add?
Dame DeAnne Julius
Yeah, I do agree with that, although I’d actually start back a little bit earlier than you did with the pandemic, ‘cause I think the roots of some of our inflationary problems were really laid in the period after the global financial crisis, that is, after 2008. That was when QE got started, remember we had then very low interest rates, they went very quickly down to near zero in most of the advanced economies. And there wasn’t a recognition at that time, which I think now is a recognition, that we were in an era of low energy prices because of Russian gas and US fracking, of very low capital prices because of QE and very low interest rates, and we were in an era of very low labour costs, because of China and the way that the Chinese economy became integrated into the rest of the world through globalisation and urbanisation in Jap – in China. And we, central banks included, kind of, assumed that those structural factors would continue, that that was the new norm.
We’re now in quite a different world, but that was where – that was what led us into very low interest rates for that decade, with QE, so extremely abundant liquidity, and banks and lack of demand, meant that a lot of that money just recirculated, rather than causing immediate inflation. So, I think we have to, kind of, recognise that this has been a long time in the running and with hindsight, that was a different era that has gone.
Creon Butler
So – and you think we would’ve had a problem, in a sense, even if it hadn’t been for the pandemic and Ukraine and so on? You think eventually…
Dame DeAnne Julius
I think we would’ve.
Creon Butler
You think we would’ve eventually?
Dame DeAnne Julius
But I absolutely agree with Chris that – and the pandemic was something that affected both demand and supply through supply chains, and the crisis – the Russian invasion then bumped up energy prices, and the view by central banks that this was transitory, kind of, meant that they thought, well, there’ll be a step change in prices, but not an increase in inflation. And that was a mistake that was made at that time.
Creon Butler
So, we’re getting a picture of both the shorter-term and the longer-term issues. I guess one of the key questions is, could policymakers have done better in responding to this situation, and, I mean, Gerard, what’s your view on that?
Dr Gerard Lyons
Well, the answer to that is yes, I think poor execution of monetary policy was a key factor contributing to the inflation we’ve seen of recent years. I echo what Chris and DeAnne have said. Maybe a different, sort of, way of looking at it. I agree with DeAnne, we need to go back to 2008. Cheap money has been a real problem in Britain and in Western economies since 2008. We’ve relied upon central banks and monetary policies always being the shock absorber whenever an economic shock took place, not just in Britain but elsewhere in the West. And cheap money led to asset price inflation, it led to markets not pricing properly for risk, led to a misallocation of capital, and it created the environment in which this surge of the inflation took hold. Now of course, monetary policy wasn’t the only factor, and as Chris touched on, supply-side factors really played a part.
But coming back to your question. If we go back to when the pandemic hit – let’s allow people leeway, when the pandemic hit, no-one really knew what was going on and therefore, people feared it was the same situation as 2008, a deflationary shock, and therefore I think we have to give the central banks some slack. But by early 2020 it became clear, particularly here in the UK, that then – if we go to February 2020, inflation was, what, 0.7%, it was only going to go one way, up. The economy was about to be reopened, therefore it was about to rebound, output was going to increase, therefore, it should’ve been quite clear at that time that there was no need for further continuation of emergency monetary policy.
But what did the bank do? It actually continued with the emergency monetary policy, it engaged in quantitative easing, and you mentioned I’m on the board of two firms in the City. All the firms in the City at that time received a letter from the bank saying, “Make sure your systems can cope with negative interest rates.” Now, that wasn’t forward guidance that they were about to cut interest rates, but it was a clear reflection of the mood think at the Bank of England at the time.
Just to conclude, at Netwealth at that time I was arguing, “Look, which P is it? Would inflation pass through, would it persist, or would it become permanent?” and I think it was quite clear that the banks said it was transitory, i.e., they thought it would pass through. I think it was already quite clear it wasn’t passing through, it was persisting, and at the very least, they should’ve moved away from emergency monetary policy. It not only meant that monetary policy was exacerbating the inflation problem, but also, often overlooked, it meant that when we had to correct for that with monetary policy being tightened, monetary policy was starting in far from where it should’ve been, which made the transition, as we’ve seen over the last year, likely to see further evidence over next year, more painful than it otherwise should’ve been.
So, I think can’t blame the central banks for all of it ‘cause there was, as Chris touched on, a big supply-side shock, and Europe, including the UK were hit by that. But groupthink amongst central banks, it’s not just the Bank of England, in the West, I think played a part.
Creon Butler
Bronwyn, do you think Gerard is being fair or do you – would you put it in the same way, or…?
Bronwyn Curtis OBE
I think he’s being fairly fair. I think one of the things I was surprised by was that their signalling, forward guidance, that this is temporary. I mean, you know, they – the data had been messed around by seasonal adjustments because of the lockdown, the samples of the Statisticians were different and smaller, actually when they came out of it and, I mean, there were divergences between hard measures and soft measures that people look at. And the idea that they felt they knew enough, that the data was very poor that they were looking at but they knew enough to say, “This will be transitory.”
So, I think, you know, the fact that there were some warning signs, you know, increases in money supply, you know, the inflation that we did have spreading to other parts of the economy, and so on, I think, probably, I might’ve been a bit less gung-ho about signalling that you thought it was temporary. ‘Cause I think it’s really undermined their credibility quite a lot, and I think there were things they couldn’t know. You know, COVID obviously turbocharged some processes that were, you know, in train – you know, people retiring, people spending time at home and thinking, “Well, this is quite nice. I don’t think I’ll bother going back to work.” So, demographic – some of these longer-term things, and there are quite a lot of longer-term things that were coming through, that they knew about and should’ve seen. I mean, I think it was all a surprise to us that people didn’t go back to work.
Creon Butler
And what about the co-ordination between fiscal and monetary policy? I mean, so, you know, obviously, what you’re describing is, in part, the Finance Ministry’s – so, the Government’s response to the pandemic, they didn’t necessarily make things easy for the central banks. So, would you put part of the weight on the Governments as well, or do you think it really should’ve been – the Governments did the right thing and ultimately, it’s for the central banks?
Bronwyn Curtis OBE
Yeah, I’m – actually, I think things like the employment support and so on that the UK did and other countries did other things, I think that was really important to keep companies going and so on. So, I think that was a good idea. I think cutting rates and doing more QE. I mean I remember thinking, why are you doing this? This is something that should be handled by fiscal policy, not monetary policy, so why are you making it – you know, what are you doing? Rates were already close to zero, so – well, I’ve always had this belief that when rates get down to, I don’t know, say 2%, it doesn’t matter what the number is, the impact of taking it lower is very small. So, there we were at, I don’t know what the number was, something like 0.75 or something, and eventually, it went down to 0.1%. Why? I just think that just made things worse.
Creon Butler
Hmmm hmm. Chris, do you…?
Dr Gerard Lyons
Just on…
Creon Butler
Sorry, go on, Gerard, yes.
Dr Gerard Lyons
I was just – if I may, just th – ‘cause there was a Treasury Select Committee session on QE earlier this year and I took part in it, and I think the point that Bronwyn’s just mentioned is very relevant, because you need to look at policy in the context of what’s happening at the time. And when we had QE after the Global Financial Crisis, it was good, it was necessary, it was a demand shock. Then we had a prolonged period of unnecessary cheap money for almost ten years, but then, the QE in response to the pandemic, even allowing for the initial, sort of, uncertainty, was wrong, and it was bad.
So, you need – some policies work at certain times, and what we saw was the QE, as Bronwyn touched on, exacerbating the problem at a time when the supply-side shock was already, as Chris has touched on, pushing inflation up. So, policy levers need to be pulled at the right time, depending on the circumstances.
Creon Butler
Chris, your – what’s your view on the, sort of, balance? I think you were inclined to be slightly more generous towards the central banks, but…
Chris Giles
Yeah, I don’t necessarily want to sound like an apologist for the central banks, but I do think we need to recognise the difficulty that they faced. So, at the start of COVID, March 2020, that first week, I think, the week of the 13th or week of the 15th/16th of March, where the bond market in this country and the US all went haywire, then QE was necessary. We needed just to flood it with money, otherwise we’d have seen something much worse. I think – or equally, if governments hadn’t stepped in with very, very large fiscal programmes, I mean, extraordinary fiscal programmes, the US was something along the lines of 10% of GDP, I can’t remember the exact number, but really extraordinary, way ahead of the fiscal programmes in the global financial crisis, which was roughly 2% of GDP, again, if they hadn’t done that then central banks would’ve been pushing on a string. They could not have helped the economy through the COVID period. And when you’re talking about that sum of money, it’s not easy to get it calibrated exactly right.
But that said, and this is where I do think the rest of the panel, who’ve been slightly harsher than me, are correct, is that the central banks woke up to the fact that they were part of the pro – inflation problem too late. Kept things, like in this country, QE, we were still buying assets ‘til the end of 2021 when inflation was already nearly 5%, because they didn’t want to say, “We made a commitment to do it for the whole of 2021 and if we break our word, then we’re suddenly going to lose trust.” Well, they would’ve lost a lot less trust if they’d broken that than by having inflation hit 10%.
Creon Butler
Is – we’ll come back to this later in the, sort of, discussion about lessons, but do you think they got trapped by their own, sort of, communication mechanisms and…?
Chris Giles
I think, I mean – and again, I don’t think it’s unreasonable for the bank, in particular, but the same for the Fed or the European Central Bank, not to have seen inflation get into double digits or close to double digits, ‘cause that was part of the Ukraine War. But in late 2021 we did know it was going up probably to 5% or 6%, and that was extraordinary for a period since independence, and that is not the time where you want to be saying, “Well, it’s alright, it’ll be very briefly up there, we did this in 2011, we had that food – you know, with that food price spike in 2011, it’ll just be like that.” When it clearly wasn’t just like that and it was different, and that was where the – when – I talked about complacency. It was that l – the second half of 2021 globally where we moved from, in the US, the Jackson Hole meeting which said, “We, basically, have to keep interest rates low for a long time so that we can get inflation up to the inflation targets, and we’re going to keep it lower than we think is necessary.” That was the US declared policy, just at the wrong time, and that’s applied across much of the world and now, we are dealing with the aftereffects of that.
Creon Butler
So, maybe now we can look to – very briefly at the, sort of – at what happens next, and maybe it’s, sort of, sensible to take, sort of, US, Eurozone, UK, Japan as, sort of, separate then. DeAnne, I wonder if I could come to you on the US, in particular. I mean they seem to have done remarkably well up to this point, notwith – you know, putting to one side whether you think they were culpable, but I mean, in terms of the inflation performance in the US. And, you know, there is – if you look at, sort of, Krugman’s arguments about, “Well, actually, it was supply chain all along, I was right. I might not have been right about the fact that inflation wasn’t coming, but I was right that it was supply chain, supply chain problems have now gone away, and things are doing better.”
What’s your take on the US, and in particular, obviously the US had the most severe, sort of, experience with financial stability issues arising from the rapid rise in interest rates that was necessary to address inflation. Do you think that those things have been dealt with, or do you think that that could be a problem in the future, as well?
Dame DeAnne Julius
Well, just to start with your last point, I think they’ve been dealt with in a drastic way. You know, now the view is any bank that gets into trouble, the Fed will bail out all the depositors. You know, they did that for Silicon Valley Bank, to the – which was a surprise to everyone I think. Maybe they had to do it with a systemically important bank, although how systemically important SVB was is up in the air. But certainly, that was a shock to the system – to the banking system, and a shock to the regulators, and the worry was that at that point all of the small banks, who had before that been exempt from marking to market what their reserves were, that a lot of them were in trouble and deposits would shift.
So, I think the – that was a panic reaction, but it’s hard to undo that. So, they have put a floor under at least deposit flows in the US, which may or may not come back to hurt them, given the difficulty, then, of making banks feel that they do need to keep an adequate reserve.
But to get to your main point, and what do they do now? I think it’s interesting that Powell and others have been now talking about whether their policy has reached – whether their interest rate policy has reached a restrictive stance. They’re reluctant to say exactly where they think the neutral rate is, although the 2½% figure still gets float – mentioned quite often, and a restrictive stance simply means they think that they’re beginning to have an effect.
Remember, for quite a long time there was a concern that even though rates had been gon – had gone up, you know, four percentage points over – you know, a multiple of times, it wasn’t having much of an effect on either inflation or unemployment. Well, I think the reason, at least with hindsight, and perhaps even with foresight, is that rates were still in negative territory. So, you’re not going to have a restrictive effect, except through the financial markets, perhaps, until rates get to a sufficiently high point that you were talking about, positive real rates.
Now – so, at this point, I think that is the right thing to focus on, both at the very short run, you know, compare the inflation rate with your short run rate, but more importantly, where you think it’s going to be in two/three years’ time. Because inflation, even in the US, is still considerably above the Fed’s target, and the measure that they look at, the personal consumption infla – you know, the core, has actually gone up, ticked up a bit.
So, I don’t think they’re out of the woods yet, and the question for them, then, is the meeting-by-meeting question, should we pause and get some more data, maybe better data, as Bronwyn suggests? We think we’re in the right territory, at least we’re into positive real rates, we think, in the medium term. I don’t think they’re thinking at all about when do we bring them down, I think it’s do we pause before we go up again if we need to? And that’s probably the right place for them to be.
Creon Butler
Thank you. So, I’m sure everybody’s got views on the UK, but maybe Bronwyn, I could come to you, first of all, but others can chip in, as well. I mean, is there a special situation in the UK that’s different from the other countries that have faced this shock, you know, particularly related to Brexit for example? But…
Bronwyn Curtis OBE
Well, it’s…
Creon Butler
…there may be other factors, as well.
Bronwyn Curtis OBE
Well, yes. I mean, there were always issues related to Brexit, which make it more expensive and keeps inflation higher, and I think that’s – it’s important just to keep that in mind, that we had one shock, self-created, and then another shock. But just going back to, you know, what the central banks are doing right now, and perhaps saying, “Well, we may be approaching a level that will work.” I think lags are very long, so – and they did all of this very, very quickly going up. So, they – it might – they might be right to stop a bit, maybe, but signalling it always makes me nervous, particularly – wages are still going up. I mean, the US Union of Auto Workers, all 146,000 of them, are going on strike on Wednesday night, I think, if they don’t get a deal which is, let me get the numbers right, 46% increase over four years, okay.
So, you know, there’s still quite a lot of tightness around. So, I’m not suggesting that they’re wrong, but I think they – the data has become more and more important, and it’s more and more flaky, as well. So, I think it’s – you know, all of them are struggling with this and I think the UK, as well, they’re all talking about, “Maybe, you know, we’ll have one more and then we’ll stop.” Is that the signal you really want to send?
Creon Butler
Hmmm hmm. Maybe we should also just briefly talk about Eurozone and Japan. I mean, I don’t know, Chris or Gerard, would – who would like to take the Eurozone? Do you want to – Gerald do you want – Chris, do you want to go the Eurozone and then, Gerard, maybe I could ask you about Japan, given your background in Japan?
Chris Giles
I’ll be very, very quick on the Eurozone. I think the Eurozone faces the same challenges as the UK. It’s clearly a gas challenge. It’s not the same in every country in the Eurozone, so we are going to be looking a little bit more at divergent risks, again, there. One of the good things for the Eurozone is that Germany is probably the weakest economy at the moment, and that is normally when things are going to be slightly easier for the Eurozone to deal with it, than if it’s the Southern European countries. But I think we also have to look at Italy, ‘cause that is the big risk, always will be the big risk to the Eurozone.
Dr Gerard Lyons
Yeah, well, you mention Japan. Japan is fascinating at the moment. There tends to always be a pessimistic view of Japan in – from the UK, or indeed, from Western Europe. Population has shrunk quite significantly in the last 20 years, but employment growth has picked up quite significantly, often overlooked. The shuntō, the pay round this year in Japan, was quite significant, around 6%. So, after having a prolonged period of 25 years where inflation expectations were anchored on zero, suddenly the ex-Central Bank Governor, Kuroda, almost succeeded the end of his ten-year term. Ueda, the current Central Bank Governor, I think is quite confident about inflation picking up, but is not yet convinced about inflation settling at 2%.
But the point is that Japan has been the provider of cheap global liquidity for so long. They not only kept policy rates negative, they actually anchored ten-year bond yields, which was really very important. A very important positive for Japan ‘cause it really engendered a pickup in investment, cheap capital for firms there. But at the end of last year, and again this year, they’ve started to tweak their yield curve control, and that’s likely to continue. At the weekend, there were very hawkish comments from Ueda. So, Japan is actually now quite confident that they’d avoided deflation, they’re in a disinflationary environment, they’re edging away from their cheap money policy, and that’s quite important.
But maybe it’s an anchor into – we’re focused very much on the West. What I find fascinating about the last few years is how what we would still wrongly call the ‘emerging economies,’ ‘cause they – that still is the term applied to them, but they’re far from emerging, the emerging economies were far more prudent in their execution of monetary policy. So much so, in the last few months, Chile and Brazil have both eased rates, China has had a prudent monetary and eventually, a prudent fiscal policy, after easing fiscal policies for so long, but China is easing monetary policy, as well.
So, you mention the UK. The UK got caught between the inflationary shock that America was hit by, plus the energy shock that Europe was hit by. At least core inflation, even though it’s higher in the UK than on the Euroz – in the Eurozone or the US, it’s now starting to climb. But what I find fascinating will be how central banks respond as we move further ahead, because at the annual gathering in Jackson Hole this year, there was – started to be divergence of thought. And if we go back to Jackson Hole in 2019, all the central banks were confident they were on top of it, they’d had great moderation, but they all talked about r-star, where policy rates after taking account of inflation should be. They said r-star was close to zero in the States, in Britain, in Germany, and in Japan.
But now it’s quite clear that even though that bias for central banks is still that r-star is close to zero because of demographic and structural factors, that’s probably not where they should be thinking, and DeAnne touched on it, we need – once inflation decelerates, we need a prolonged period, possibly, of positive real interest rates. So, if inflation gets down to 2% and you think r-star is zero, then that would imply policy rates are at 2%. If inflation gets to 3%, r-star would imply policy rates at 3%.
Maybe if inflation settles around 3%, we should be having policy rates settling around 4½% or so, i.e., very different economic environment in the future to the past, but the challenge we all know is that central banks will be seen as the shock absorber again, ‘cause Politicians and others will be putting pressure on them. But I do think we need a period of prolonged positive real interest rates in the future.
Creon Butler
Great, yeah.
Dame DeAnne Julius
I mean, I’d like to just come in on the r-star point, because I think one of the difficulties is that most of us Economists and central banks have been thinking about it in terms of productivity plus inflation. R-star has several functions, in theory, and one of the most important medium-term functions is equating savings and investment flows, and we’ve got – we are facing quite heavy demand for investment. You know, we’ve got the energy transition that we – that’s coming up, we’ve got ageing populations with additional healthcare needs, we probably have extra defence spending for the next few years because of the invasion.
So, the investment needs, I think, are bigger, in a structural sense, than they have been, and at the same time, you – there’s not a lot of fiscal policy, scope, to finance all this with fiscal policy, because deficits are already large and debt is large. So, I think we’re going to be facing the same conclusion that you’ve just come to, that is, higher positive real rates than it had been thought we could get away with. In the very long-term, yes, productivity is almost everything, but we’re not in the very long-term yet, you know. We’re in this medium-term transition phase transitioning out of a, say, an era where inflation and interest rates were very, very low. We’re not in that era anymore.
Creon Butler
Great. Bronwyn, you wanted to come back, and then I want to get into lessons, yeah.
Bronwyn Curtis OBE
Yeah, I want to just come back to Asia, really…
Creon Butler
Sure.
Bronwyn Curtis OBE
…and I want to come back to China, which is massive now. It’s not something we can really ignore, and, you know, everyone’s been quite pessimistic about China. It’s had a big slowdown, you know, and so on, and I think, you know, that’s right, but they’ve done a lot of things. I mean, they’ve done about 200 micro measures just recently, not just cutting rates, they’ve done other things, to try to stabilise things. Now, we know the property sector’s got problems, but they’re all – they’re aware of all those things and they are doing things.
So, I think, two things. If they manage to stabilise the economy, you might see a shift, a mix, that we’ve got negative China, positive US at the moment, or, if we talk about currencies, let’s just do it that way, might shift to a more positive view on China and a slightly neg – more negative view, relatively, on the US. And the other thing it will do is commodity prices will start to rise again. You’ve already seen the commodity currencies just in the last week starting to strengthen again, and I think, you know, you need to be aware that the inflation pressures, it’s not just energy, particularly if you need all this investment and – to get to Net Zero and so on, all of those commodity prices have been quite subdued.
Creon Butler
Yeah, very good. Great, so we talked a lot around the subjects in order from, kind of, advanced economies and also China, but let’s now move to the, sort of, the harder question. So, what should we learn from all of this? And the first thing I’m going to say is obviously, if you’re going to change your system, you don’t change your system when you’re right in the middle of the crisis. So, let’s put that to one side and say at some point in the future, when we have that opportunity to improve the system, what are the things that you would do in the light of the experience of actually – well, I think, you know, what DeAnne was saying, and let’s go all the way back to the global financial crisis, to some extent?
And, you know, there could be issues around data, there could be issues around communication, you know, how one grapples with completely unexpected events, like the pandemic and – obviously, completely – not unexpected but completely, sort of, unexperienced – previously unexperienced events. Could be questions around the framework, could be questions around governance, so on and so forth. So, Chris, you’re writing a report for the Central Bank Monetary Policy Committee, and you have this chance to tell them what they should do in the future.
Chris Giles
What they can do.
Creon Butler
Yeah.
Chris Giles
Okay, I’ll go for three things, but these – this is not comprehensive. One is, be aware of politics. Politics is going to get very messy where it comes to central banks and difficult, I think, in the years ahead. If you look at the US, there was a poll of registered voters in the US at the weekend, which asked them, “Is inflation going in the right direction?” Factually, the answer is yes, 75% of the people on both parties said no, 92% of Republicans said no. So, it’s difficult. People do not like inflation. In – this is a – this has been a disaster for central banks, what we’ve been through, and so the politics is going to be difficult. America, in particular, is going through a very, very difficult political year next year. They might imprison a Former President, who might also be the candidate of one of the leading parties and win the election. Would be – just know that it’s going to be really, really difficult.
We’ve seen, just again at the weekend in Poland, the Central Bank there just before an election had a 75-basis point cut in its interest rate because that was deemed to be convenient for the Polish Government, so independence is under pressure. I don’t think independence is so strong that the UK Treasury, or the US Treasury, wouldn’t say, “It would be awfully convenient if you might cut rates just before an election.” If you were thinking about doing it, in the US, “you might want to think October not December next year,” or something like that in the UK. So, I think…
Creon Butler
So, but how do you…
Chris Giles
How do you get on…
Creon Butler
You’re a smart central bank, you realise this is – so how do you, sort of, reinforce yourself against this?
Chris Giles
You absolut – so, I think you absolutely have to go for transparency and legitimacy, and making it absol – none of the, sort of, you know, covering your back, “We didn’t do anything wrong.” I think you own up to the things that you got wrong so that you just have to try and get your trust back. I think the second lesson is on the framework, very – I’ll say this very, very quickly, because everyone’s hated inflation so much, don’t start thinking about at the moment going to a 3% inflation target, you stick at two. I think you stick at two actually for a very, very long time. The chan – the – we understand why it’s, sort of, technically better, three might be, but we also understand the public have really hated the inflation and it has some very pernicious, unexpected distributional consequences, as well, which I think we’ve learnt, again.
And finally, fiscal policy does matter, and sometimes it can matter at helping central banks, as well. We’ve learnt that both in terms of helping economies out in COVID, and actually now in dealing with inflation, it would have been a lot better if governments had been clamping down, tightening fiscal policy, to help central banks along the way. So, I think the idea that you can be entirely separate has gone.
Creon Butler
Gerard, maybe I can ask you about fiscal policy and…
Dr Gerard Lyons
Yeah.
Creon Butler
…you know, the relationship with monetary policy. Obviously, you know, that brief experience with Liz Truss, we got into a lot of trouble in the UK in that respect. What lessons do you think we should learn from that?
Dr Gerard Lyons
Yeah. Well, clearly, she didn’t take into account the markets, and you need to take stakeholders with you, and there’s a whole host of lessons from then. But if we look at fiscal policy, and DeAnne touched on this, look, here in the UK debt to DGP is 100%. There is a danger of Britain, and not just Britain actually, the International Monetary Fund earlier this year in their spring Fiscal Monitor said, “There’s a danger of Britain and other Western economies falling into a debt trap.” If your debt to GDP is greater than 100% and the interest you’re paying on your debt is greater than your rate of economic growth, which it’s likely to be, the preconditions are there in place, so you need to finance yourself.
So, fiscal policy does have a role to play, as Chris touched on, to, sort of, support monetary policy. You can’t rely on monetary policy as the shock absorber, fiscal policy has to play a role in terms of stabilising the economy when it makes more sense for fiscal policy to do so. So, getting that relationship right between monetary and fiscal policy, I think, has to be a lesson we learn, because on the monetary policy side, we mustn’t return to cheap money. So, that inevitably removes your…
Creon Butler
I mean, we’ve got in the UK the MPC and the Office of Budget Responsibility, in the US we have different arrangements and so on. I mean, are there any – to get this right in future, are there any changes that in the ideal wer – world you would make, or do you think, in a sense, it’s not so much the structure but it’s what the individuals in charge do?
Dr Gerard Lyons
Okay, well the OBR could be far better used to do scenario planning and stress testing. They do once a year in terms of their longer-term projection. The danger in the UK is that we have Journalists always – and Economists are far more sensible. Journalists always think the forecasts that come out are precise and they’re going to be accurate, whereas Economists all know they’ve got a huge margin of error attached to them. So, we need a more grown-up debate, rather than saying one month, “Gosh, last autumn, we were in a terrible fiscal state, then in spring, we’re in a great fiscal position,” and how much headroom?
The fiscal rules need to change because the idea that your fiscal policy is set based on where fiscal numbers will be in four to five years’ time isn’t always the sensible thing. Debt to GDP is vitally important. I would argue for a nominal GDP target, as opposed to an inflation target. I would not be changing it now. Nominal GDP, growing nominal income makes more sense. If you have a 4% or 5% nominal income target, it allows you to manage output fluctuations. Also, in a future environment, where debt sustainability becomes more important, I think this starts to take a greater prominence in terms of policy debate.
But also, if I may, not on fiscal policy, but just one thing I think it’s important to stress on monetary policy, is that for much of the last 25 years, before the pandemic, and Bronwyn touched on China, the joke in the City was, “The Consumer Price Index should be renamed the China Price Index.” The point was that 25 years of global factors drove inflation down, and if you look at the global factors, there were four that came to the fore, and two of those four are now changing. The four were globalisation, wage share being very low, technology, and financialization. Now, financialization and technology are still there. We all, kind of, have our own guesstimates and assessments about that, but both of those will likely drive prices lower, as we’ve seen in the past, but the two that have changed are the wage share and globalisation.
Now, on the wage share side, I would say that’s a positive, in the sense it will – as wage share picks up, it forces companies to start to think more about investing in capital and in their staff. But the globalisation is being replaced by fragmentation, and it mirrors the change in geopolitical terms where we now have a G3 world, group one: America, its allies, group two; China, its allies, group three: the non-aligned countries, of which India is at the forefront, and I know DeAnne has touched on BRICS, not today, but before. So, we’ve got changing environments which matters, both for monetary policy and also, coming back to your question, for fiscal policy.
Creon Butler
And so, this is something central banks should – I mean, they can’t do anything unless they actually see something happening, but it’s something they should be sensitised for in how…
Dr Gerard Lyons
Yeah. Well, the challenge is that inflation might well settle at a low level, but higher than we’ve seen before. It might not settle at one to 2%, it might settle at two to 3%. Who’s to say? Three to one is a big difference, but you don’t, as you touched on and Chris touched on, you don’t change policy in the middle of a shock or crisis, ‘cause that adds to instability. You wait ‘til things calm down.
Creon Butler
DeAnne, what do you think the main lessons are that we should take into the future?
Dame DeAnne Julius
Well, I thought that Christine Lagarde did a fantastic speech at Jackson Hole, and what she said was, “We are now in an era of shocks and breaks,” which I think we could all pretty much agree with, given what we’ve gone through, “and so you need three things for monetary policy. You need clarity, you need flexibility, and you need humility.” Clarity, for her, and indeed, for me, means be very clear what your target is. It’s price stability, it’s defined slightly different in different countries. I wouldn’t agree with going to a nominal income target, because I think that people don’t understand a nominal income target. Indeed, it’s quite easy to get inflation out of control if your growth rate is very low and you’re focused on the nominal, which is a combination of the two. I think it’s very important to stick to 2%.
I wouldn’t object to increasing the time horizon a bit. You know, maybe it’s going to take a little bit longer than the two to three year horizon that the Bank of England uses now. That can be done extremely easily and without any real change in regime, it seems to me. But clarity of the target, and the Central Bank remaining clear on that target, and that also partly means not adding a lot of other targets to the Central Bank. I don’t know how the Central Bank is act – any central bank is actually going to help the energy transition much, but it’s been…
Creon Butler
I mean this…
Dame DeAnne Julius
…put in there as a footnote for them.
Creon Butler
It has been put in, but it – well, we might come back to that, ‘cause I have a slightly different view. But anyway, Bron…
Dame DeAnne Julius
Just – if I can just comment on the fiscal monetary question, ‘cause I think that is a really important question.
Creon Butler
Yeah.
Dame DeAnne Julius
You know, in the US now, the US is running a budget deficit of nearly 8% of GDP in an economy which is – has full employment. I mean, that is a ridiculously loose fiscal policy, and I don’t know if it’s going to be tightened, probably not if Trump comes in. But when you’ve got an – a very loose fiscal policy, you do need a tight monetary policy as a balance. It’s not – you don’t actually want them working together if they’re going in the wrong direction.
And in this country, we are – and in the US, we’re having a much tighter monetary policy going ahead than we have in the last decade. That generally ne – means that you can afford, or you need to support the economy a bit with fiscal policy. Trouble is, we’ve got the debt problem and we’ve already used up that degree of freedom. So, I think we’re going to have a real issue focusing both on bringing inflation back to a sensible state, and what do we do about the fiscal deficit? I think that’ll be a big political issue.
Creon Butler
Thank you very much. Bronwyn, anything you disagree with in what people have said, or anything you would like to add?
Bronwyn Curtis OBE
Just a couple of things to add. So, 8% of GDP, I saw a stat which says. “The US now has to attract between half and two thirds of the world’s marginal increase in savings every year.” And, you know, I just wonder whether longer-dated bond yields in the US, particularly if the Japanese start taking their money home because they’re getting better yields at home, you might see much higher yields. So, the bond market vigilantes might come and, you know, cause problems for that. So, that’s just an – I just think these big debt levels are a problem, and it’s difficult ‘cause we don’t have very high growth and we won’t have very high growth, to, you know, to get it down.
I want to go back to, actually, Gerard’s point about, you know, the three groups in the world, you know, where – you know, the US and so on. I just think that it would be good if, I won’t just talk about the UK, but if they looked a bit more out of the box, and looked at these other big things that are happening in the world and took them into account. So, I think a bit more diversity of thought in terms of how they make policy and what they put into their models. I’m a bit iffy about the model, but – just because I think it’s been – I’ve always thought that, you know, it’s no good having a model based on low inflation and all of that stuff and then, you’ve got a different situation altogether. It’s not going to work.
So, I think there’s a – and I think we could do with a bit more diversity in the policymakers themselves, just in terms of people who’ve perhaps had more experience in Asia, in – just in energy, in something. You know, I just think that it would be a much better situation. They wouldn’t have missed some of the things that they did. Now, I picked on the UK, I could probably say that for all the central banks, by the way.
Creon Butler
You’ve got to get used to talking about having multiple models to help guide the MPC, but we all know there was only ever one model. So, you know, this is a desire that I think is often expressed, but it’s very hard, actually, to deliver, but maybe your idea of through the individuals is one way to address it, yeah.
Bronwyn Curtis OBE
I think, the individuals, having people with different perspectives, would really help.
Creon Butler
Great. Now…
Dr Gerard Lyons
Yeah, Danny Blanchflower always used to say that to me. When Danny was there he always used to talk about, “No diversity in terms of background, uniformity in terms of universities” and – yeah, lots of ways you can get diversity of thought, I completely agree.
Creon Butler
Right, okay. So, we have almost 15 minutes for questions, and I’d like to get – to use the time as efficiently as possible. We’ve already got a number of hands going up. So, what I would like to do is actually take a couple of question – a couple of people at a time, ask you to put your question, make sure it is a question, and – as precisely and clearly as possible. So, if we start on that side of the room first, we’ve got a couple of gentlemen there. So, gentleman at the end first, and then, gentleman next to you, yeah.
Josh Crine
Hi, thank you.
Creon Butler
And if you can just say who you are first as well, yeah.
Josh Crine
Yes, I’m Josh Crine, I’m from Flint Global. I just wanted to explore the political risks a bit more, and what the distributional effects will be of more persistent inflation and higher than usual real interest rates. I think asset price inflation was mentioned, which I’m quite interested in as a young person, as well.
Creon Butler
Very good. Gentleman next to you.
Nicholas Duncan
I just am wondering whether there’s not a letter missing from the title – my name is Nicholas Duncan, I’m a member of Chatham House – “The Best Way to Beat Inflation.” The dynamic of your panel’s been very interesting because the first 15 to 20 minutes was, basically, mostly monetary policy and mostly UK/US, and then you started to diversify. And the missing letter would be an ‘s’ at the end of inflation, because you identified, DeAnne, you started with this, the three global trends of the last 15/20 years, the financial crisis, COVID, Ukraine. But then, as your discussion became more nuanced and more international, you started to allude to a whole host of factors which are, in fact, local, and which means that perhaps we’re not talking just about an inf – global inflation, but about different inflations in different places.
So, as we see, political fragmentation – I completely agree with everything that was said about the role of politics, fiscal policy, etc., you have to take all these things into account, but what you said about diversity, Bronwyn, at the end, diversity of thought, leads me to this question. Do we not also need to think about fragmentation in terms of the inflations that need to be addressed, and not consider that it’s essentially a global monetary problem for the big central banks? Sorry to be a bit long about that.
Creon Butler
I think I und – I mean, basically, different models in different countries. I’ve also got a question online, which is really about the impact of cheap money over and above on inflation. Where the questioner says, “Wasn’t it corrosive to the economy as a whole?” I think that’s that period covering – the period from the Global Financial Crisis to the pandemic.
So, if I could ask for really quick responses on the geopolitics, you know, multiplicity of models, corrosive effect of inflation, and maybe, Chris, if I could come to you first.
Chris Giles
Okay, very quickly. To Josh’s question on the distribution and the political risks. The distribu – I think the distribution, nor consequences of inflation, the real problem with them is that they’re arbitrary. You don’t know if they’re going to be pro-rich, pro-poor. Generally, they’ll be pro-young and anti-old ‘cause they generally, they help people who’ve got market power and they tend to help borrowers. But that’s the only thing you can say, and we’ve seen different sorts of inflation. It started off being quite bad for rich people, ‘cause it was first of all, transmitted through petrol prices, and then as it moved to energy prices and food, it was the polar opposite of that and really hit the poorest the hardest. But it – these things can change.
In terms of inflations, I fully agree, I think I was trying to say something very similar right at the start, that there are different things going on. There are some global factors, but there are also local things on top of that.
And in the corrosive nature of cheap money, clearly, there were problems about having a relatively loose monetary period after the global financial crisis, but having tight monetary policy over tho – that decade I think would’ve been even worse.
Creon Butler
Worse, yeah, okay. Does – we don’t all have to answer all the questions, but anything you want to add to what Chris has said?
Dame DeAnne Julius
I would just add a point on – Nicholas, on your question, because I think that one thing we didn’t touch on very much is strains within the Euro area, and I think the fragmentation risk, as Italy’s situation is so different from Germany’s situation, and you see this in the TARGET2 balances. Now, they have tiptoed in a very, I think, clever way around this question, saying, “Well, we’ve looked at what fragmentation risks might be and we think we can handle them,” without saying exactly how they would handle them. And for the moment, that has, kind of, kept the lid on, I mean, but, you know, Germany still has 5% inflation, France is down to almost three, Estonia is, I don’t know, 12 or 14.
It always, kind of, amuses me and sometimes annoys me when we see in the media a comparison between Britain’s inflation rate, which is pretty meaningful, and the Euro area average inflation rate, which is almost meaningless, except that they are in a single currency. So, their interest rate is much too high for some countries and probably too low for others, and that does create real differences and different problems in different countries.
Creon Butler
Thank you very much. Maybe let’s get some more questions. I have a gentleman there, a gentleman at the front here, and a gentleman over there, I’ll come back to you in a minute, sir. Sorry.
John Warren
So, putting – John Warren here. Putting the argument again for more flexibility and a wider range of thinking, if you were to go back to 300 years of human experience and take a worldwide view, can you still recommend a range that you’d like to see for inflation, or even deflation? And what sort of range would you like to see for interest rates, bearing in mind hundreds of years of 5%?
Creon Butler
It’s a – yeah, the – this is in an ideal world? Yeah, okay. I think gentleman at the front here, you’ve got a mic. Can you [audio cuts out – 56:53]…?
Member
[Inaudible – 57:00] a Nigerian as you know, member of Chatham House, and lecturer at the Global Banking School, London, a Consultant on oil import. Thank you very much, distinguished panellists. I’m so interested in the way and manner you view the literature, US/China, the global economy, which is fine, but my question is on Nigeria. Nigeria has a new President few months ago, three months ago, precisely. President Tinubu assume office 100 days ago, and his economic policy are orthodox, which – a reflection, business-friendly. One of the key points, they remove subsidy for oil, which has been clamouring for many years. Second…
Creon Butler
Sorry, so…
Member
…they ensure that for exchange rate, which is – we have multiple exchange rates before, now is unified into one. My question to Chris Giles, the Financial Times Editor, how confident can Nigeria beat inflation, and what is the risks? Because at the minute in Nigeria, if – the price of items are so expensive, it’s beyond the common man, and secondly, the removal of subsidy is chopping the economy. People cannot transport themself from home to work. It’s been a very great issue in recent weeks, and the idea is that this has a long-term effect on economy, which is good.
Creon Butler
Thank you very much.
Member
Thank you very much, sir.
Creon Butler
We’ll take that question, and I have one more over here as well, please. Gentleman at the back. It’s all gentlemen so far. I’m hoping we’ll get some…
Remi Meehan
Thank you.
Creon Butler
…more diversity in our questions, as well, but please.
Remi Meehan
Thank you. My name is Remi Meehan, I was a Fixed Income Trader for 12 years. My question is, there seems to be a consensus in the panel that monetary policy in advanced economies after the Global Financial Crisis was too loose. I think Chris, kind of, mentioned this, and my question is, why can you be so confident in stating that, given that the average unemployment rate for that ten-year period in the EU was around seven to 8%, and equally important, inflation during that period in the Eurozone was between one and 1.5%? I would think as a Central Banker, that that necessitates loose monetary policy. Thank you.
Creon Butler
Thanks for very much. So, Gerard, maybe I could come to you, and having – previously being at Standard Chartered, I know you might want to ask – answer the Nigeria question as well, but if you could have a go at those, too.
Dr Gerard Lyons
I thought you asked Chris, but actually…
Creon Butler
We’ll come to Chris in a minute.
Dr Gerard Lyons
But yeah, actually, in terms of Nigeria, but it touches on two points that are more important than just looking at Nigeria, is about price levels. We talk about rates of inflation, but the gentleman touched on price levels, and also about fis – the importance of fiscal transfers to actually make sure that different parts of the community are either subsidised or helped out in the painful adjustment. Nigerian economy though in – the currency is such a key factor, and it is such an energy-dependent economy, it has a huge population, and it hasn’t diversified, quite frankly. So, the problems are all structural in nature. So, even though we – the question is about monetary policy, that’s just touching at the surface of the issue, to be frank.
I don’t – I – last time I was in Nigeria, about a year before the pandemic, I was talking at a pension fund conference and it was about the idea that – interesting, ‘cause it touches on some of the points DeAnne implicitly touched on, relating to Britain and other countries, is about the need for Nigeria to have a higher rate of savings, and implicitly a high rate of investment. But I don’t think Nigeria should be seen as different to other countries in terms of its inflation problem at the moment, but I need to look at it further. I haven’t followed it in exact detail recently.
But can I just make just two points on, very quickly, where should interest rates be? Look, I think the way I would think about it would be if you’ve got growth of 3%, or sorry, inflation of 3% and growth of 1.5%, nominal GDP 4.5%, that’s the old rule of thumb we would’ve had in the City 20/25 years ago, and that’s where I think we should be thinking in terms of rates. And the question that Remi mentioned, if I got the name right, about monetary policy being right, the way I would describe it, it was good, unnecessary and bad, if we look at monetary policy since 2008. Monetary policy in the aftermath of the Global Financial Crisis was good. It pulled us back from the brink. We then had the cheap money policy that was unnecessary, notwithstanding the points you made.
The high unemployment in the Euro area, eight to 9%, you mentioned, was as much structural factors. Low global – low inflation, yes, but that was a reflection of the global factors I was touching on earlier. The central banks in the West were keen to take the credit when global factors kept inflation low, but seemed to be keen to blame global factors when inflation picked up. You can’t have it both ways. But the bad has been, in my mind, as I touched on earlier, the last couple of years, ‘cause the shock, pandemic and afterwards, was very different to 2008.
So, you are correct, it – the numbers allow a different narrative, but I think we need to actually, sort of, take it apart to, sort of, say it was good immediately after 08, but as we moved through 12, 13, 14, 15 and it was probably unnecessary to have kept monetary policy as loose as central banks did.
Creon Butler
Thank you very much. I mean, I don’t know if Bronwyn, Chris or DeAnne, if you want to come back, yeah.
Dame DeAnne Julius
A little bit on the query about, you know, over the very long-term where should interest rates be, where should inflation be? Over the very long-term I think it is right to link those two metrics to global growth, and global growth, if we’re talking globally, global growth is probably two to 3%. That’s where it has been in real terms for the last several decades, 3.5% sometimes. Inflation, I think what the – you need something that feels like price stability, which doesn’t mean zero inflation, but something that has a little flexibility around it, because it’s very hard to cut wages compared to increasing them. So, I’d go for something on the inflation rate of between one and 3%. 2% is actually not a bad number to aim at. So, if you add those two together, you get a nominal rate of somewhere between three and 6%.
Creon Butler
Thanks, and yeah, no more. Yeah, Bronwyn, anything?
Bronwyn Curtis OBE
Just on the – I am – I hear you, but over the long term, yes, I agree with DeAnne and, you know, and Gerard, but actually, we have a whole lot of eras of different inflation, different growth, different movements in the global economy, and of course, post-COVID, or actually it’s been going on for quite a long time, we’ve had a lot of changing things. The deglobalisation, the ageing population, you know, I can go on. So, I think that it’s quite difficult, if not impossible, to judge where it should be.
Now, I think right now, I think we talked about we’d – it should be a bit restrictive, or maybe even more restrictive depending on, you know, what happens. But I think it’s quite hard to say that, you know, there’s a number for either of these that’s right, but inflation, I agree with DeAnne, shouldn’t be zero. You probably need it, I would’ve thought, around 3%, frankly, two to 3%, but – you know, ‘cause it’s quite hard to do things when it’s zero. So – but, you know, that’s just…
Creon Butler
Yeah. Thank you, Bronwyn. Now, Chris, anything on – particularly on Nigeria, since the question came to you?
Chris Giles
So, just on Nigeria, very quickly, I’m not an expert on Nigeria, but when we’re looking at structural reforms, particularly orthodox structural reforms, where there have been particularly bad structural policies before, oil subsidies being one of them, I think it is not a – it’s a sensible thing for a government to do. The question is always how quickly, what mitigation measures, and how you implement it in detail. So, there are some important things which I don’t know and I’m not going to comment on.
On Remi’s question about too loose. You know, is the panel saying we all said that loose monetary policy was bad in the post-Global Financial Crisis? Actually, I didn’t. I think I said the opposite, essentially, I said there were corrosive elements of having a loose monetary policy, but if we hadn’t had it, it would’ve been worse.
Creon Butler
Thanks. So, we’re almost, I think, minus 30 seconds, but there was a gentleman here who I promised we’d come to him for his question, so last question, Sophie, and…
Gerard Lyons
Hi. Also called Gerard Lyons, Foreign Office. Quick one. Given Bernanke’s doing a review of the Bank of England, what are the panel’s views on the merits of dot plots, whether or not that should be adopted, perhaps?
Creon Butler
Dot plots?
Gerard Lyons
Yes.
Dame DeAnne Julius
Yeah, I’ll come out on that. I think one of the problems we’ve had is that there’s been too much communication focus on the inflation forecast. If you listen to the press conferences that the Bank of England gives after it’s made its decisions when there’s a quarterly report, they spend 80% of the time talking about the forecast. And, of course, then the press, including the FT, you know, has a headline, “Year and a half long inflation,” or, “Recession, that’s what the forecast said.”
Chris Giles
I can give a funny – in 97 or so…
Dame DeAnne Julius
So, the dot plot I think is a better idea.
Chris Giles
Yeah, I was going to say, Eddie George in 97 gave the Mais Lecture in the City, and the Bank had just been made independent, and I got to ask the first question, and I said, “Shouldn’t the bank come out with giving us a view about its interest rate view, to remove volatility and to have stability, so have dot plots?” and he basically put me in my place, completely, at that time, but actually, eventually the Americans went down that route. But yeah, I can see why some people wouldn’t want it, but I think it’s a good idea.
Creon Butler
Anyone else, or – yeah?
Bronwyn Curtis OBE
I don’t know. I – they haven’t done very well with any forward-looking forecasts, so I think it undermines credibility if you do too much of it. So, I’m not that in favour.
Dr Gerard Lyons
Oh, I’m a huge fan, but – and I would go further. I would say they have to – the MPC should put their name to their dot.
Dame DeAnne Julius
Ooh.
Bronwyn Curtis OBE
Ooh.
Dr Gerard Lyons
So, it shouldn’t be…
Chris Giles
I quite like that; I agree with that.
Dr Gerard Lyons
It shouldn’t be anonymous.
Chris Giles
Yeah.
Dr Gerard Lyons
You – if you’re on the MPC you’re paid by the taxpayer to take very important decisions for the UK economy, you should put your money where your mouth is and be accountable for your view. That doesn’t mean I think they’re bad people, I think they’re really good people, but that’s where it should be. And the current way of having mar – having the forecast conditioned on market or constant rate r, so the bank officials can go inflation shopping or forecast shopping, use one for one thing and then switch to another, is a complete communications nightmare.
Chris Giles
And I – the other thing in 97 that people were asking, and Maurice Peston on his Monetary Policy Committee asked Eddie George, is, “Shouldn’t they vote secretly, rather than going round the table?” So – and that’s the most sensible eco – way – economic way to do it.
Creon Butler
You might – if you’re an MPC member you might ask for a pay rise, I think, but they…
Chris Giles
Well, fair enough, fair enough, yeah.
Bronwyn Curtis OBE
Well, wouldn’t – couldn’t you get the situation where one member is mostly getting it right, ‘cause you can do that for a year or two? You know what these things are like, and then…
Creon Butler
Keep them on then.
Dr Gerard Lyons
But there shouldn’t be – you shouldn’t seem to be a failure if you change your mind, ‘cause that is – that’s the definition of uncertainty. Things happen, you will change your mind, and you should be accountable for that, and then you can go out and explain why you’ve changed your mind, and that is all we can ask them. We can’t ask them to get it right, but we can ask them to be accountable.
Creon Butler
Yeah, very good.
Creon Butler
Well, on that note, perhaps I could, first of all, thank the audience for some brilliant questions, and perhaps we could all thank our brilliant panellists [applause].