Boe’s Bean says economic doubts may undermine impact of QE
Bank of England Deputy Governor Charles Bean said consumers’ and businesses’ concerns about the outlook may undermine the impact of quantitative easing, in remarks one week before officials’ next decision on stimulus. “Looser monetary policy works in large part by encouraging households and businesses to bring forward future spending to the present,” Bean said late yesterday. “It is plausible, however, that such intertemporal substitution will be weaker when uncertainty is elevated and when banks and some households are concentrating on repairing their balance sheets.”
Speaking at the University of Hull, England, Bean gave an overview of the measures the Bank of England has implemented to battle the recession and said the financial crisis showed that policy makers “knew less than we thought.” His comments come as the central bank prepares to publish as soon as this week independent reviews into its response to the turmoil and the Monetary Policy Committee’s forecasting capability.
The past five years have been “a challenging, but humbling experience,” Bean said. “As a result of the crisis, we have found ourselves providing liquidity support in unexpected ways, deploying unconventional monetary policies in alien circumstances, and developing a whole new lexicon of macro prudential policies.”
The Bank of England unveiled a 50 billionpound ($81 billion) round of asset purchases in July, and policy makers will decide on Nov. 8 whether to expand stimulus again. Bean said while QE has pushed down long-term yields, a “more open question” is the “degree of traction these lower yields have on demand at the present juncture.