BOE’s chief economist Pill hints traders’ rate hike predictions are wrong

LONDON — The Bank of England remains committed to its “important objective” of lowering inflation but hopes markets will “re-entrench” interest rate expectations, chief economist Huw Pill said on Friday. told CNBC.

The central bank hiked rates by 75 basis points, the most since 1989, on Thursday, warning of a prolonged recession while trying to temper market expectations of further aggressive monetary tightening.

The Bank of England has a 2% inflation target, but price gains are expected to reach a 40-year high of 10.1% in September and peak in the fourth quarter.

“We have to nurture both [the] but also take steps to scale back quantitative easing [quantitative easing] To strengthen policies to reach the target,” Pill said.

“And the fact that there are these turmoil in the market that needs to be addressed is either deterring us or distracting us from this important medium-term goal of what the Monetary Policy Committee is trying to do. “

BOE's Bailey: UK economic shock different from US

Pill suggested that recent volatility in the UK economy, including the panic in bond and currency markets that preceded former Prime Minister Liz Truss’ fiscal policy announcement in late September, has distorted market expectations of the bank’s future rate hike trajectory. .

“We don’t think we need to raise interest rates as much as the market is priced in, precisely because it causes the economy to slow more than is necessary to keep these inflation dynamics under control,” Pill said. added.

The World Bank expects the recession that started in late 2022 to last until mid-2024.

“Finding the balance that allows us to return to our 2% inflation target without creating unnecessary and costly problems in the real world of the economy,” Pill said.

“And it creates that balance and shows that balance. That was our key message yesterday.”

Banks issued uncharacteristically direct guidance to markets on Thursday, with Pill saying the monetary policy committee was “trying to re-consolidate” during a period of political and economic turmoil in recent months. said to mean [its] A unique way of thinking about the “more fundamental factors” of inflation.

“I think we’re trying to re-establish communications based on projections that emphasize more fundamental factors,” he said.

“And we hope that in a world that looks beyond the turmoil seen in the past, markets will have the opportunity to re-establish their thinking and, ultimately, their pricing. I think it wants and intends… a few months.”

Banks were forced to intervene in the UK government bond market in September with an emergency two-week gold coin buying program after market reaction to the Truss tax cut ‘mini-budget’ put pension funds on the brink of collapse . Pounds to an all-time low.

Markets have stabilized somewhat since former finance minister Rishi Sunak took office as prime minister. His return to a more conservative fiscal policy eased pressure on banks to act more aggressively on inflation.

Watch CNBC's full interview with Bank of England's Andrew Bailey.

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