Carney’s Committee Diverges on Wage-Growth Confusion
Mark Carney’s focus on weak wages to keep record-low borrowing costs is up against one key foe: the strongest economic growth in the Group of Seven.
Minutes of the Monetary Policy Committee’s July meeting this week will show how the nine members voted when they kept the key interest rate on hold and where the fault lines in their thinking lie.
In the year since he introduced his forward-guidance policy, Carney has shifted the focus from the unemployment rate to spare capacity and now to wages as evidence that the economy can continue to grow without fueling inflation.
In an interview in the Sunday Times published yesterday, the governor said an expectation of a recovery in earnings may be enough to push the MPC toward policy tightening.
“We have to have the confidence that real wages are going to be growing sustainably” before rates begin to rise, he said. “We don’t have to wait for the fact of that turn to do so.”
Carney said it was “entirely healthy” for MPC members to have different opinions “and it is to be expected at a time when decisions become more finely balanced,” but that the committee is united in the view that the pace of tightening should be “gradual.”
Also clouding the outlook is conflict in regions including Ukraine and Gaza and the unexpected stall in the euro-area recovery, which may add to the case for keeping rates at emergency levels.
Adding to the policy dilemma is the strength of the economy. The BOE last week raised its projection for 2014 growth to 3.5 percent. That’s more than twice the 1.7 percent the International Monetary Fund has predicted for the U.S.
Source: Bloomberg
