Jacob Rees Mogg, on the Treasury Committee, which holds the Bank of England to account, has called for Mark Carney to be ‘fired’ for his handling of the discussion of the risk of a short term shock to the economy in the event that the country votes to Leave the EU.
This is a serious error.
For starters, Carney, as he ably explained on the Marr show on Sunday, was speaking entirely within the confines of his remit. The MPC have at their disposal a tool which acts with long and variable lags. And so they have to be prepared to act to head off future risks, of which the risk of Leaving is a clear example. Not only that, but decades of unsuccessful central bank opacity have convinced many – Carney notable in this regard for being so modern – that being open about these risks helps others avoid them [anyone about to roll over their mortgage out there?] and helps us hold him and his fellow MPC members to account.
Rees Mogg, in my opinion, ought to reflect on the role the TC itself has in nurturing central bank independence, which is a delicate and still somewhat unwritten thing. The legislation allows for many escape clauses that could lead an erratic Chancellor to take back control of monetary policy, and ensuring that such clauses won’t be triggered petulantly is part of the job of TC members.
In this regard, his wish to fire the Governor will look to many [it does to me] itself like a politically motivated and spurious demand. And it the sort of thing that would, if the habit spread, lead us to start forecasting future inflation based on the weight of different factions in Treasury Committee numbers. It is a decisive break from the hope that committee membership of this sort be governed by a degree of non-partisanship and technocracy.
What are we meant to infer from this demand? That it is Vote Leave policy? That if there were a vote to Leave, and a change of guard at the top of the Conservative Party, that there would be some energy put into expediting the early departure of Mark Carney?
My only criticism of Mr Carney is this. That his position was made more uncomfortable by having strayed from his remit back in October 2015 with the report on the EU that waxed so lyrically about some of the longer term benefits of membership. And also that he could have been more frank about how the balance of risks weigh if we Leave. As I wrote previously, I’m almost certain that privately the MPC and its staff will be thinking that the upside push on inflation won’t matter: i) the supply side effects are small and slow-moving and ii) the exchange rate fall will be looked through. There are more remote scenarios in which this won’t hold, but those are not those that were being put centre stage by Mr Carney last week.
Not being more open about the nature of the Leave risk detracts from the admirable direction of travel regarding transparency. And it would also fit better with the declared strategy of explaining that they are ‘simply telling it how it is, uncomfortable though it may be.’ Why did they do it? I’ve no idea. Perhaps because it would signal clearly that rates were not likely to rise as the Chancellor had previously warned and that would be complicated for the Bank?