Bank of England governor Mark Carney has hit back at criticisms of central banks’ low interest rates and its impact on inequality in an appearance before the Treasury Comittee.
“It’s very important to distinguish between the stance of monetary policy and the reasons why global interest rates are low, inequality has increased across major economies,” Carney told the meeting.
“Those are caused by much more fundamental factors and an excessive focus on monetary policy is in many respects is a massive deflection exercise.”
Prime Minister Theresa May has previously spoken of monetary policy driving inequality, which prompted critics to suggest she was not respecting the Bank’s independence.
Carney rejected questioning by Treasury Committee chair Andrew Tyrie that May’s speech had informed his decision regarding whether he would serve a full eight-year term at the central bank.
Carney has confirmed he will extend his existing term to 2019, but will not remain in the role for the full eight-year term, in order to ensure continuity as the UK completes its exit from the European Union. It is expected to trigger the two-year Article 50 process in March.
His family had played an important part in the decision-making process, Carney told the committee.
Carney rejected comparisons between May’s criticisms and those of US president-elect Donald Trump, who has indicated that he would like to replace US Federal Reserve chair Janet Yellen.
“The president-elect has voiced some views on the Fed and the stance of monetary policy. I think the issues around structural change are much broader, the responsibilities of Bank of England are much broader, macroprudential policy is a broader suite of tasks.”
‘Inflation is going up’
Regarding today’s inflation figures, which fell to 0.9 per cent for the month of October, Carney concedes that they were “lower than we expected”.
But he says he “wouldn’t take a steer from the October figures” pointing out that there were short-term effects in the data, particularly in clothing and footwear, which was the “biggest downside surprise”.
“That’s a very volatile component. It’s heavily influenced by weather and seasons and people, on a day like today, not having to go out and buy a warm coat.”
“In terms of the direction of inflation, inflation is going up. The pass through from a 20 per cent trade weighted fall in the level of sterling is going to come, it’s going to build towards the end of this year into 2017.”