BoE Chief Economist Andy Haldane said he in a speech he expected UK inflation to be “near 4% than 3%” by the end of this year. “This increases the chances of a high inflation narrative becoming the dominant one, a central expectation rather than a risk.” Inflation expectations would then “shift upward”.
“We would experience a Minsky Moment for monetary policy, a taper tantrum without the taper,” he warned “This would leave monetary policy needing to play catch-up to re-anchor inflation expectations through materially larger and/or faster interest rate rises than are currently expected.”
Different from the Global Financial Crisis, he said “time that policy script feels stretched.”. And, “the pace of recovery is significantly faster now than then, bouncing rather than edging back.” He warned, “a slow exit risks putting central bank balance sheets on an unsustainable footing”.
Overall, Haldane said, “in my view it does, however, call for immediate thought, and action, on unwinding the QE currently being provided, given the state of the economy and central banks’ balance sheets.”
