MPC member calls for Bank to resume QE
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Adam Posen, an external member of the Bank of England’s Monetary Policy Committee has called for the Bank to resume its quantitative easing programme.
In a speech to the Hull and Humber Chamber of Commerce, Posen says policymakers face a clear and sustained uphill battle, in which monetary ease had an ongoing role to play, even if it may not deliver the desired recovery on its own.
He says: “The risks that I believe we face now are.. ones of sustained low growth turning into a self-fulfilling prophecy, and/or inducing a political reaction that could undermine our long-run stability and prosperity.
“Inaction by central banks could ratify decisions both by businesses to lastingly shrink the economy’s productive capacity, and by investors to avoid risk and prefer cash.”
He stresses that this view reflects recent developments that have been broadly consistent with previous patterns since in Japan in the 1990s and in the United States and Europe in the 1930s.
He says sustained high inflation is not a threat, but persistent high unemployment and output gaps are a threat, and we should take further monetary action to sustain and promote recovery.
Posen advocates the use of government bond purchases and says: “Fear of looking ineffective should not be a deterrent to doing the right thing. When facing a worsening situation, you work with the tools you have.”
Answering the question of why it might be right to provide more policy stimulus at this stage, he explains that his priors were that it was unlikely that there would be a normal recovery after the financial crisis and that the policy measures taken, although helpful, would prove insufficient.
But it was worth putting these central expectations on hold to see whether the emerging recovery following the stimulus provided in the UK and elsewhere was sufficiently strong. As that has not happened, he argues, there is now a case for considering ‘doing more’.
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