Trash Talk Is the Wrong Language for Central Bankers

It's never a great sign when a central bank governor says his country's predicament is a “pretty sad story.” That's how Bank of England Governor Andrew Bailey described the UK at the Federal Reserve symposium in Jackson Hole, Wyoming, last week. He said weak productivity and poor labor participation present an "acute challenge" for raising potential growth. This is well-trodden ground among economists, but from the central bank head it comes very close to criticizing the government. There has been a noticeable chill recently in communications that could be considered blame-shifting.

One might see these comments as a precursor for announcing interest-rate cuts or even stopping quantitative tightening. But that’s now how the BOE rolls; in fact, by muddying the waters Bailey was aiming for quite the opposite — to buy yet more time to maintain the highest benchmark rate in the Group of Seven to see how economic indicators pan out. If inflation is genuinely heading much higher or too close to prevailing gilt yields then it's the BOE's clear duty to act.