Central bankers waiting to see who will jump first

BOE balance sheet

Inflation in the UK is “moderate and manageable today”, currently standing at a record low of 0.3% and well below the 2% target. So too are asset prices and household debt, but this situation could deteriorate quickly and thus requires close monitoring according to Kristin Forbes from the Bank of England who was speaking on Tuesday.

“Since interest rates take well over a year to be fully effective, they should be adjusted to respond to inflationary risks on the horizon at that time – when all of the effects have diminished – rather than respond to today’s inflation,” Forbes pointed out.

The BoE seems more divided than ever over a rates hike since the arrival of Governor Mark Carney, analysts familiar with the issue remarked on Tuesday.

Meanwhile, in the US, the Federal Reserve’s chairwoman Janet Yellen adopted a dovish tone by pointing out that the Fed would not make a move on interest rates for at least two Federal Open Market Committee (FOMC) meetings.

Indeed, the US labor market picture is improving, according to Ms Yellen , although inflation remains sluggish and is expected to decline further in the coming months given the fall in oil prices.

It seems that central bankers on both sides of the Atlantic are waiting to see who will jump first.

 

 

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