BOE's Posen Defends ECB's Actions

Dr. Duru submits: (This is a adapted repost from Inflation Watch)

Adam Posen, a U.S. economist on the Bank of England's nine-member monetary policy committee, offers a critique of conventional central-bank wisdom.

Dr. Duru submits: It’s the main question that keeps me and my colleagues at the MPC up at night. That’s why in our last set of forecasts….we stressed there are upside risks. The slack in the economy is not pushing down on inflation the way we’d like…core inflation is higher in the UK; it’s not dragging down like it is in Europe or in the U.S. But I would rather have this problem…than be facing deflation.

OTTAWA • Mark Carney will be travelling relatively light when leaves Canada for the U.K., but he’ll be taking on excess baggage when he arrives at the Bank of England. Mr. Carney, who begins his five-year term as BoE boss on July 1, inherits a central bank that appears maxed-out but still has some wiggle room left to avoid a double-dip recession and strengthen the lifeline to banks.

The world’s largest central banks, including the U.S. Federal Reserve, the Bank of England and the Bank of Japan, are overseeing unprecedented easing programs. While the European Central Bank, unlike the BOJ or the Fed, has not purchased large amounts of sovereign debt, it could do so in the future by ramping up its Outright Monetary Transactions (OMT) program. That program allows the ECB to purchase sovereign government bonds on the secondary market, which would be expected to lower interest rates in the event of renewed turbulence in the euro zone.

Adam Posen, a member of the Bank of England's Monetary Policy Committee, has indicated he is in no rush to vote for a rise in interest rates because there is no immediate panic over rising inflation.