Why does the BOE bother?

Here’s a question … if you’re going to start raising rates to normalize monetary policy, why would you only do it once?  Presumably, you’re confident that the economy is ready to start moving towards the old normal … but one 25 basis point hike every 6 quarters does what, exactly?

The U.K.’s first interest-rate increase in over a d

ecade will take place at the Nov. 2 announcement, according to 76 percent of those surveyed by Bloomberg, up from 22 percent of respondents in September. But the economists don’t see another hike until the first quarter of 2019 – Bloomberg Quint

The Bank of England target rate from 1993 to 2008 was about 5.5% (plus or minus 1.5%) … that’s a lot of 25 basis point moves from here.  Are they just pulling a page from the 2016 FOMC playbook?  “American did it this way … at least nobody will yell at us for doing it this way.”

BOE rate

The BOE is facing their own shuffling of upper management as Governor Mark Carney’s (Canadian/British Yellen) term ends in June of 2018.  The line of thinking by the surveyed economists must be this: Carney and the BOE believe that the economy is strong enough to withstand some slight normalization, but let’s not push forward too abruptly; Carney was the dove but we’ll let him complete this cycle, and then we’ll bring in the hawk.

Why though?  Either the economy can handle it, or the economy can’t handle it.  Either start and do it, or wait until it’s time.  I’m not advocating hiking 350 basis points right away to get things back in line with history, or even 25 basis points per meeting like Greenspan did.  I just don’t know what economic metric you could really be analyzing when you only raise rates 25 – 50 basis per year (or 75, America …)


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