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It’s time we got over our fixation with central bankers

The FT has an editorial today that discusses whether or not the Bank if England should cut interest rates this week.

In that editorial there are some surprising admissions. For example, it is noted that the Bank (and other central bankers) do not understand how inflation works. It follows that they do not understand their own role in controlling it, or otherwise. They conclude, despite thus, with policy reasons being given, that the Bank should not change rates. Apparently the paradox within the article did not occur to them.

Elsewhere in the paper there is discussion about the new generation of lead central bankers – and one is very clearly emerging – giving up their focus on rates so that they might give greater attention to regulation. That is an idea very obviously consistent with new thinking on their role in tackling the climate crisis, where interest rates are likely to have little part to play.

There is, though, another perfectly good reason why rates should not change. That is simply  that any change will make no difference. The only thing a 0.25% rate change would indicate is whether or not the Bank thinks the economy is deteriorating, or not. And candidly, whatever they think, they could be wrong. The real world impact of that rate change will be insignificant, come what may. So why do it?

The reality is that the Bank could do this solely because it can.

And because it would be Carney’s last gasp.

And because it would get a headline for an hour or two.

But just like the utterly meaningless reporting of the value of the FTSE 100 index that news broadcasters insist on relaying almost every hour, all that indicates is that a a change in rate simply reflects a number  that can alter. And journalists with otherwise limited maths ability can usually spot when one number is bigger than another, so they comment on it.

But, so what? is the real question. And there is no answer to that. Of all the news that might be reported this week a change in rates is very low on the agenda of significance.

It’s time we got over our fixation with central bankers.

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