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Sometimes there isn’t any good options available. Persistent inflation is usually a long term problem, and their mandate is to (attempt to) maintain inflation w

Sometimes there isn’t any good options available. Persistent inflation is usually a long term problem, and their mandate is to (attempt to) maintain inflation within the 2% range. We might just have an unavoidable recession. I’m not diminishing the detrimental consequences of this, just acknowledging it is likely to happen no matter what the BoE chooses. At least this short term pain scenario should bring inflation back under control, allowing for growth and gain in the medium term.

kypro 4y ago
I'm not saying there are good options available at this point. The primary mistake was the illusion that we could close the economy for months just to reopen without any problems, but then we followed that with the second mistake of not raising rates in 2021. The economic consequences which would result from the COVID lockdowns, monetary stimulus and fiscal stimulus was something I warned about repeatedly during 2020-2021. We're screwed whatever we do now and I agree recession is unavoidable at this point. Many people are about to lose everything and many will die as a result of fuel poverty whatever the BoE do. All they can really do now is try to limit the pain. On whether rate rises are needed, you're assumption is that persistant inflation is a concern, and I don't agree with this. The inflationary pressures we face are mostly a result of fuel prices which aggressively increasing rates will do nothing to solve. For you to be right you have to explain both why you think increase rates will control inflation we're seeing (it won't) and why you think inflation expectations will remain high in a recessionary environment (unlikely). In addition to this you also have to explain why further rate rises on top of the 5 prior raises is required. We know it takes time for rate rises to take effect so aggressively raising rates like this presents huge risks if economic data deteriorate in the coming months. If the BoE is concerned about inflation expectations, then the question to ask is why this wasn't a concern in 2021. Now recession is imminent inflation expectations shouldn't be as much of a concern.
- cykros 4y ago
  The sanctions on Russia are certainly not helping on the fuel front (never mind the food/fertilizer front), and as bad as things were made by the handling of COVID, this additional blunder took things from limited options to no options. Central banks can only do so much when governments are hell bent on setting fire to the whole system.
- jon_adler 4y ago
  Fair challenges. I don’t think that all the inflation we are seeing is fuel or supply chain constraints. I think we are also seeing demand side effects of the record low unemployment (albeit due to record low participation rate), high levels of personal savings (boosted during Covid), high property price inflation along with ongoing effects from fiscal and monetary stimulus over the past few years. Raising interest rates should remove some demand from the economy. These demand pressures all still remain IMHO. Interest rates are a blunt instrument and unfortunately the least able to afford them are likely to suffer most. I’d support targeted government spending to those most impacted during a high inflation recession to limit the pain. I believe the PM candidate (Truss) policy to reduce taxes is misguided. The truth is, we are probably both going to be wrong about the best way to solve this.

kypro 4y ago

I'm not saying there are good options available at this point. The primary mistake was the illusion that we could close the economy for months just to reopen without any problems, but then we followed that with the second mistake of not raising rates in 2021. The economic consequences which would result from the COVID lockdowns, monetary stimulus and fiscal stimulus was something I warned about repeatedly during 2020-2021. We're screwed whatever we do now and I agree recession is unavoidable at this point. Many people are about to lose everything and many will die as a result of fuel poverty whatever the BoE do. All they can really do now is try to limit the pain. On whether rate rises are needed, you're assumption is that persistant inflation is a concern, and I don't agree with this. The inflationary pressures we face are mostly a result of fuel prices which aggressively increasing rates will do nothing to solve. For you to be right you have to explain both why you think increase rates will control inflation we're seeing (it won't) and why you think inflation expectations will remain high in a recessionary environment (unlikely). In addition to this you also have to explain why further rate rises on top of the 5 prior raises is required. We know it takes time for rate rises to take effect so aggressively raising rates like this presents huge risks if economic data deteriorate in the coming months. If the BoE is concerned about inflation expectations, then the question to ask is why this wasn't a concern in 2021. Now recession is imminent inflation expectations shouldn't be as much of a concern.

cykros 4y ago
The sanctions on Russia are certainly not helping on the fuel front (never mind the food/fertilizer front), and as bad as things were made by the handling of COVID, this additional blunder took things from limited options to no options. Central banks can only do so much when governments are hell bent on setting fire to the whole system.
jon_adler 4y ago
Fair challenges. I don’t think that all the inflation we are seeing is fuel or supply chain constraints. I think we are also seeing demand side effects of the record low unemployment (albeit due to record low participation rate), high levels of personal savings (boosted during Covid), high property price inflation along with ongoing effects from fiscal and monetary stimulus over the past few years. Raising interest rates should remove some demand from the economy. These demand pressures all still remain IMHO. Interest rates are a blunt instrument and unfortunately the least able to afford them are likely to suffer most. I’d support targeted government spending to those most impacted during a high inflation recession to limit the pain. I believe the PM candidate (Truss) policy to reduce taxes is misguided. The truth is, we are probably both going to be wrong about the best way to solve this.