Posen Says BOE Should Go Beyond Conventional QE to Fight Slump
The central bank’s quantitative-easing program “is preventing things from getting much worse, but that doesn’t mean you couldn’t have an additional or better instrument,” he said in an interview with the Financial Times published today. “As long as the central bank isn’t monetizing government debt in the primary market -- directly buying from the government so it can expand fiscal policy -- I don’t think it really matters that much what assets the central bank acts on.”
Posen, who will leave the central bank at the end of the month, also said the U.K.’s economic path after the financial crisis could have been “significantly better” had policy makers acted sooner and more decisively to signs of faltering recovery, the FT reported.
Posen has led calls for the central bank to expand actions to counter the economic slump, pushing for QE for a year before the Monetary Policy Committee finally restarted bond purchases in October 2011. Ian McCafferty, chief economic adviser at the Confederation of British Industry, will replace Posen on Sept. 1 when he leaves to become president of the Peter G. Peterson Institute for International Economics in Washington.
In an article in the Mail on Sunday published yesterday. Bank of England Governor Mervyn King said the economy is “not at full fitness right now” and policy makers will do all they can to bolster growth.
“The conditions are in place for a recovery, and the Bank of England is, and will carry on, doing all we can to help bring it about,” he said.
Posen’s departure comes as the central bank prepares to absorb new powers to regulate banks and monitors financial stability through its new Financial Policy Committee.
“I really feel the MPC does have to have the authority to make up its mind on what instruments it wants to use,” Posen said in the FT. It should “not be constrained by either the BOE executives saying, ‘We don’t want to do X,’ or ‘that’s the Financial Policy Committee’s territory.’”
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