Andrew Haldane, chief economist at the Bank of England and executive director, Monetary Analysis and Statistics
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UK bond yields rose on Friday after Bank of England chief economist Andy Haldane warned that inflation could be difficult to domesticate, leading to more assertive policy action.
In a recorded lecture released Friday, Haldane noted that there were upside and downside risks to the inflation outlook, but warned that an inflationary “tiger” had awakened.
“The combined effects of unprecedented major shocks and the high levels of support of unprecedented policies have caused it from its sleep. In this environment, the act of domestication of the tiger facing central banks is difficult and dangerous.” , said Haldane.
Global markets have been nervous last week due to a ten-year rise in Treasury yields in the United States, driven in part by rising inflation and economic growth expectations as Covid vaccines develop -19 and consumer demand can be triggered.
Earlier this week, U.S. Federal Reserve Chairman Jerome Powell tried to allay concerns that the Fed is tightening monetary policy conditions in the face of rising inflation. Powell promised that he would maintain his unprecedented accommodative position, adopted to exit the economy from the coronavirus crisis, projecting that inflation and employment would remain below target.
Haldane, considered the most hawkish member of the Bank of England’s Monetary Policy Committee (MPC), acknowledged the possibility that as vaccines are rolled out and normalcy returns, inflation will stabilize. He added that disinflationary forces could even return if pandemic risks persist.
“But for me, there is a tangible risk that inflation will be more difficult to tame, which requires monetary policy makers to act more assertively than is currently valued in financial markets,” he said.
“People are right to warn about the risks of central banks acting too conservatively by tightening policy prematurely. But for me, the biggest current risk is the complacency of central banks that allows cat inflation (big) get out of the bag “
The performance of the British 10-year Gilt rose to 0.816% after the speech was released, while the 5-year and 2-year Gilt rates rose to 0.396% and 0.121% respectively.