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Will Janet Yellen prove to be an unreliable girlfriend?

Published Monday, November 9th, 2015

The governor of the Bank of England has not had a good week. Already described as the “unreliable boyfriend” by a Labour MP earlier this year he can now add “Mr Flip-Flop” and “the boy who cried wolf” to his decorations. It is not so much that the Bank of England decided once again not to raise interest rates, as the manner of the decision that has unleashed the backlash. The vote not to raise the interest rate was comprehensively NO and the associated comments implied there may not be a rise until 2017. It was almost as though the committee had no recollection of advising the market to be prepared for a rate rise this year. The BoE is as guilty of mis-selling as the banks they supervise and fine.

The problem for Mark Carney is that in July 2014 he warned that an interest rate hike “could happen sooner than markets currently expect”. In July this year he advised that “the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of the year”. The unexpected dovishness and explicit concern about “foreign weakness” is alarming and contradicts the view of Janet Yellen and others that ‘outside’ factors are now of less concern than they were a month ago. The JPM Global Manufacturing PMI for October for example rose in October and has been above 50 for 35 consecutive months. ‘Outside’ or ‘foreign’ conditions have supposedly improved.

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Posted by David Hufton