The August BOE meeting was more interesting than we first thought as the MPC agreed on the 7% unemployment threshold.
Carney: unemployment rate threshold is best 'summary indicator' for the MPC
Is Carney a banker or a lawyer? He couched the announcement on forward guidance with an economic threshold with so many escape clauses it sounded more like he was reading a disclaimer…
The BOE forecasts unemployment to fall to 7% in Q3 2016. So rates will stay low until then? Not necessarily…
Carney: '7% is not a target for unemployment' , 'threshold is not a promise on rates and a breach won't imply immediate rate rise', 'policy stance will depend on economic conditions', BOE will not jeopardise 'financial market stability', 'primary focus remains inflation and price stability'.
The unemployment rate is a difficult indicator to use, Carney has said that weak productivity is a puzzle in the UK. How does the boom in zero hours contracts weigh on productivity, for instance? How does this impact future rate movements? Lots of unanswered questions…
The Bank is still looking at QE, and there is still a possibility of more asset purchases down the line.
Carney cautiously optimistic on the economic outlook, and acknowledged the recent pick-up in growth.
Initial GBP weakness is starting to fade, as the market judges this to be 'forward guidance-lite'. The unemployment threshold of 7% is higher than the Fed's 6.5%.
FTSE virtually unchanged, although pledge to keep rates low until late 2016 is potentially good news for UK economies, broader FTSE 250 index, which is more representative of UK companies, is flat on the day.
Interest rates: very choppy, but basically unchanged so far…
The Q&A is still on-going, so I risk talking too soon, but overall Carney delivered what was expected of him, but this is likely to be considered Forward-Guidance lite, and the downward impact on the pound could be limited, especially if the economy continues to recover.
IMOH, Clement I.
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