QE on the back seat
The Minutes to Mark Carney's debut MPC meeting were eagerly anticipated. They didn't disappoint. The big surprise was that nobody voted to increase quantitative easing (QE) in July; three members had voted to do so in June.
18 July 2013
Does this mean that the printing press has been turned off for good? Not necessarily, but it does suggest that QE will take a back-seat to other policy measures for the time being. The most obvious alternative is “forward guidance”, where a central bank gives guidance about what it intends to do in future about its main interest rate or other aspects of monetary policy like QE.
Forward guidance could be time-dependent, where the bank announces that it will keep interest rates unchanged until a specified date. Or it could be condition-dependent, with the bank saying it will keep policy unchanged until certain conditions are met (e.g. unemployment falls to a specified level).
For those of you who fear that we cannot talk our way to recovery, fear not. The Minutes also made a teasing reference to "other options". This might mean purchases of other assets, like corporate bonds, or something else altogether. But the message is clear: QE is no longer the only show in town.
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