By Tony Mace
NEW YORK (MaceNews) – Major central banks, including the Bank of England, have the tools and room to respond to a slowdown, if needed, BOE Governor Mark Carney said Tuesday.
“The possibility of a slowdown has certainly gone up,” Carney said during an appearance at the Council on Foreign Relations. Asked whether the central banks are still able to respond, Carney said, “Yeah, we have the tools.” The central banks “have varying degrees of space – the Fed has the most space.”
UK banks have been obliged to build up a minimum capital buffer, and monetary authorities have the option of releasing it, in addition to using other policy tools, Carney said. “Banks have up to 300 billion in room, if we release it, to improve financial conditions,” he said.
Outside of monetary policy, “most major jurisdictions have fiscal space, the U.S. has the fiscal space – it’s not unlimited, but there is room.”
If there is a hard Brexit, “the core of the financial system is ready, whatever it takes.”
The impact “would be material: we would expect growth to slow, the currency to go down, inflation to go up” as the UK is forced to adjust overnight to a change in its most important trading relationship. For the rest of the EU there would be a “lesser but still material impact.”
Asked what the market is saying by inverting the yield curve, Carney responded, “it’s certainly not the strongest vote confidence,” adding that it is much easier to invert the yield curve when rates are so low.
Asked about the possibility of negative interest rates in the UK, Carney said, “zero is the effective lower bound” in light of the role of building societies. “We don’t contemplate it,” he said, of negative rates.
Asked to comment on threats to central bank independence, Carney said the bank “receives instruction through statute” and in regular meetings with government. “It’s important that we stay in our lane, he said. “We take government policy as a given, and we respond to that …. Brexit will have consequences, and we have to take that into account.”
It’s critical for central bankers to be transparent, and to make themselves accessible to the public, Carney said. “In this age when expertise is under question, there is no substitute to going out and meeting people face to face,” he said.