Andrew Haldane, Chief Economist and Executive Director of the Bank of England, Monetary Analysis and Statistics
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UK yields rose on Friday after Andy Haldane, chief economist of the Bank of England, warned that inflation could become difficult to tame, leading to more assertive policy action.
In a recorded lecture published on Friday, Haldane noted that the inflation outlook posed upward and downside risks, but warned that an inflationary ‘tiger’ had awakened.
“The combined effects of unprecedented major shocks, and unprecedented high levels of policy support, have brought it out of its slumber. In this environment, the tiger-tam action facing central banks is difficult and dangerous,” Haldane said.
Global markets have been furious over the past week following a ten-year rise in US Treasury yields, driven in part by rising expectations for inflation and economic growth as Covid-19 vaccines are rolled out and potentially pent-up consumer demand is released.
Earlier this week, the US Federal Reserve, Jerome Powell, sought to ease concerns that the Fed would tighten monetary policy conditions in the face of rising inflation. Powell has promised to maintain his unprecedented accommodative stance, which was adopted to lead the economy out of the coronavirus crisis, and predicts that inflation and employment will remain below target.
Haldane, considered the worst member of the Bank of England’s Monetary Policy Committee (MPC), acknowledged the possibility that inflation would stabilize as vaccines were rolled out and normalcy returned. He added that disinflationary forces could even return if the pandemic risks persisted.
“But for me, there is a tangible risk of inflation that is harder to tame, and that requires monetary policymakers to be more assertive than is currently priced in financial markets,” he said.
“People have rightly been warned about the risks of central banks acting too conservatively by tightening policies early. But for me, the greater risk right now is that the complacency of the central bank leaves the inflationary (big) cat out of the bag.”
Yields on the British 10-year-old Gilt rose to 0.816% after the announcement of the speech, while Gilt rates rose to 0.396% and 0.121% respectively for five and two years.