Recommendations made by Radix in a report titled “Quantitative Easing: the Debate That Never Happened” have become government policy.
In our report we outline the regressive impact of monetary policy as currently practiced. There are alternative ways of implementing Quantitative Easing that would have not been so regressive. We also recommend that, in a functioning democracy, policies that have such significant social impacts should be a matter for the elected government that is politically accountable rather than being delegated to unaccountable central bankers.
In her speech to the Conservative Party conference, Theresa May stated:
“while monetary policy – with super-low interest rates and quantitative easing – provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects. People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.”
Today it was reported that “A major shift in economic policy away from quantitative easing is expected to be announced in this year’s Autumn Statement, according to reports.”
While not formally ending central bank independence, this shift in policy and explicit political statements regarding monetary policy imply that the government is taking control of the role and nature of monetary policy. The Bank’s reaction will be interesting to watch but it looks like the government is moving to make central bank independence something that exists in name only while direction is determined by the government and the Treasury.
It was just on radio 4 that what is going to happen is that the govt will be injecting cash into the economy through infrastructural investment with an emphasis on prudent borrowing and spending. In other words they are taking advantage of cheap credit. This policy will reduce the need to inject cash into the economy through QE as well as avoid the need to further reduce interest rates. So in this sense the govt is taking more control of monetary policy.
Which all seems a justifiable, and frankly oft requested, shift in approach. To suggest it means an end to BoE independence is frankly an absurd extrapolation. The government has always been a player in the monetary policy by dint of its massive spending power.
The central banks of the world have boxed themselves into a corner with interest rates, frankly. They frantically twiddled the few knobs they had at a time when those knobs really made no difference. They ended up with the knobs set to zero, and no one is now sure how to get out of the situation – which needs to be done at some point to store a sensible balance of saving / spending incentivisation. It is unclear that QE has really had an impact beyond the vague feeling that the central banks care.