Ex-White House Adviser Forbes to Testify as BOE Changes Gear

Kristin Forbes, a former White House adviser who’s set to join the Bank of England’s rate-setting committee, may give clues today about her leanings as officials move toward the first policy tightening in seven years.

Forbes will testify before U.K. lawmakers in London before taking part in her first Monetary Policy Committee meeting next month. Her appointment comes as policy makers shift closer to raising borrowing costs and at a time of flux for the committee, with three new members joining this summer.

The hearing follows publication today of the minutes of the MPC’s June meeting, in which officials said a rate increase this year may be more likely than investors anticipate. The panel began shifting its view on the need for record-low borrowing costs last month, while Governor Mark Carney further fueled speculation last week when he said rates may rise sooner than expected.

“Forbes’ testimony is important given we’re getting closer to the juncture of a change in monetary policy,” said Philip Shaw, chief economist at Investec Securities Ltd. in London. “Her testimony could help give us more color as to where that debate might head. Momentum is gathering for a rate rise.”

The MPC voted unanimously this month to keep its key interest rate at 0.5 percent, where its been since March 2009, today’s minutes showed. Policy makers said the economy could maintain its pace of growth and slack “would be absorbed more quickly than had previously been expected.”

‘Somewhat Surprising’

“In that context, the relatively low probability attached to a bank rate increase this year implied by some financial market prices was somewhat surprising,” the BOE recorded.

Last month, the MPC said decisions were becoming “more balanced” for some of its nine members. That phrase was repeated today, along with the line that all officials agreed they needed to see more evidence of slack reducing before increasing the key rate.

The June meeting took place before Governor Mark Carney said last week that interest rates might start to rise earlier than anticipated. His comments prompted investors to bring forward their bets on the timing of the first increase to January from May.

The deliberations on the need for a rate increase are heating up as Britain’s economy continues to strengthen and unemployment falls. Countering that, inflation slowed to 1.5 percent in May, below the BOE’s 2 percent target.

New Members

New additions to the MPC may also shift the debate. Forbes, 43, fills the space freed by Ben Broadbent after he was promoted to deputy governor for monetary policy. Nemat Shafik from the International Monetary Fund takes over from Markets Director Paul Fisher in August, while Andrew Haldane became chief economist this month, taking the place of Spencer Dale.

Haldane will speak this evening in Scarborough, England, while policy maker Martin Weale will deliver a speech at 12:15 p.m. to business leaders in Belfast, Northern Ireland.

“The committee is more unsettled than it has been at any point during Carney’s tenure,” said Sam Hill, a senior U.K. economist at RBC Capital Markets in London. “There will be three new members at the August meeting, compared with what we had in May and their views remain relatively unknown so far.”

International Expertise

Forbes, a professor at the Massachusetts Institute of Technology, is scheduled to testify at Parliament’s Treasury Committee 2:45 p.m. in London. Questioning may focus on macroprudential measures, an area that she specializes in, and how this will interact with monetary policy, Hill said.

Forbes previously worked to safeguard global financial stability with then-U.S. Treasury Undersecretary John Taylor and became the youngest member ever on the White House Council of Economic Advisers. Her policy experience also includes work on the Argentine debt crisis in 2001, while she’s on the advisory committee of the Peterson Institute for International Economics.

“Having someone who’s got a clear international view is welcome, given the U.K. is such an open economy,” said Neville Hill, an economist at Credit Suisse Group AG in London and a former U.K. Treasury official. “She’s done quite a lot of work on financial flows and that could be a real help to Carney.”

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