The past month has seen a flurry of speeches and interviews by members of the Bank of England’s Monetary Policy Committee. All seem to agree on two things: quantitative easing is working, but no one is sure how well it is working. With the all-important November decision on extending quantitative easing coming soon, it is time for a round-up of where the individuals on the Committee stand. Remember the MPC is not a body that takes decisions by consensus or by the power of the Bank governor, so each individual’s view counts.
Divining views can be tricky, but my guess is that the Committee will seek the option to raise QE, requesting more headroom from the Treasury. I cannot see why they would seek anything else, given the uncertainties. It also seems likely that there will be something like a 6 to 3 majority in favour of continuing the purchases of gilts on the basis of the – admittedly weak – evidence. See below for my tally and the evidence.
Kate Barker Her most recent speech was almost a month ago, when she said her view on QE would depend on the data flow and “the prospects for spare capacity in the economy”. The data has been mixed since her speech, the exchange rate has fallen sharply and the Bank view is that there is lots of spare capacity in the economy. I think it suggests she will seek more headroom and more QE. Otherwise she would need to explain why she was willing to see spare capacity reduced at a snail’s pace in a relatively slow recovery.
Charlie Bean In his speech last week, Charlie launched an attack on those who claim banks are simply sitting on the QE money so it is not working. He also explained why he did not worry about losses on the Bank’s asset purchases. This robust defence of QE suggests he will seek more headroom and more QE.
Spencer Dale His speech at the end of last month was notable for its passages on the risks of too much QE. “The substantial injections of liquidity might result in unwarranted increases in some asset prices that could prove costly to rectify,” he said. But he also stressed the need for monetary policy to get the economy going again. This balance suggests he will seek more headroom but a pause in QE.
Paul Fisher The market reaction to my interview with Paul Fisher was not what I had expected at all. I took his comment that the Bank might “pause” QE, but “I think it’s unlikely we would ever say we had stopped” as a reasonably dovish comment, reassuring gilts markets that a sudden stop is not going to happen in November. Traders seized on the word pause. Since he failed to articulate how the economy could grow anything like as fast as he wanted without more QE, I reckon he will vote for more headroom and more QE.
Mervyn King, the governor, is giving one of his big speeches tomorrow evening. But the fact he wanted more QE than the majority on the committee in August, suggests he thinks the Bank should aim to raise nominal spending as aggressively as it can. That suggests he will want more headroom and more QE.
David Miles His speech on QE is now a few weeks old, but was in line with standard Bank thinking. but in allowing the economy to bypass banks, he appears a big fan of QE. Since he voted for more than the majority in August, it is probably safe to put him in the more headroom and more QE camp.
Adam Posen He joined the Committee in September, so the November meeting is his first opportunity to make a big decision. In his Sunday Times interview, he said he was not worried about inflation risks, adding “My personal view is that if you look at the things we’re looking at … we’re not there yet.” This sounds like a clear view to have more headroom and more QE.
Andrew Sentance He has not spoken publicly since 21 September. He was seen to be one of the least willing to raise QE in August. Without much evidence to go on, I guess he would be closest to the more headroom but a pause in QE camp.
Paul Tucker The deputy governor for financial stability has not said anything on QE recently. There is not much to go on so I will put in in the more headroom but a pause in QE camp.
I will return to this scorecard closer to the November 5th decision.