Monetary Policy without anticipation
25 March 2021 | by Peter Warburton
“If the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit.” Mantras, such as this one from the Bank of England, have become the threadbare apologetics that substitute for a coherent, forward-looking, monetary policy. Imagine a night-time rally driver, deciding to turn off the auxiliary lights because she knows the road so well. Or a solo yachtsman, deciding to dispense with the GPS and follow his instincts. Central banks, casting aside a century-old correlation, are asking us to trust their judgment – and their models – rather than provide sound arguments and analysis to support their decisions.