The BoE’s decision to raise the Bank Rate to 0.75% is a mistake. It is a mistake comparable to those made by Alan Greenspan’s Federal Reserve in the years between 2003 and 2006.
It is a mistake that must be understood in a wider context. Not just the political context – which promotes ‘monetary radicalism and fiscal conservatism’ – to quote David Cameron and George Osborne. But also in a wider monetary policy context.
As the governor of the Bank pointed out recently: ‘the Bank is the only game in town’ …
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Yes, it was a mistake. The Bank of England should have started raising rates much sooner, as did the Federal Reserve. These artificially low rates and QE are designed to benefit the 1% against the interests of the 99%, by artificially inflating asset prices, and subduing real economic growth, along with the implementation of austerity to reduce aggregate demand growth, in the hope of restraining wages and interest rates.
Carney should have advised that rates are going to rise every month for the next year, and that the Bank of England’s Balance Sheet will be reduced to reverse the QE previously undertaken. Then we can burst all of the damaging asset price bubbles, such as that in the property market which are doing so much damage to real economic growth, and workers living standards, and begin to build economic growth on a more sustainable basis.