Andrew Haldane, Bank of England Chief Economist and Executive Director of Monetary Analysis and Statistics
Chris Ratcliffe | Bloomberg via Getty Images
British bond yields rose on Friday after Bank of England chief economist Andy Haldane warned that inflation could become difficult to tame, prompting more assertive policy action.
In a taped lecture published Friday, Haldane noted that there were both upside and downside risks to the inflation outlook, but warned that an inflationary “tiger” had awakened.
“The combined effects of unprecedented shocks, and unprecedented levels of policy support, have brought it out of its slumber. In this environment, the tiger-taming that central banks are facing is a difficult and dangerous one,” said Haldane.
Global markets have been jittery over the past week due to a spike in 10-year US Treasury yields, driven in part by rising expectations for inflation and economic growth as Covid-19 vaccines are introduced and pent-up consumer demand may unleash.
Earlier this week, Jerome Powell, chairman of the US Federal Reserve, tried to dampen concerns that the Fed would tighten monetary policy conditions in the face of rising inflation. Powell promised it would maintain its unprecedented accommodative stance, adopted to help the economy out of the coronavirus crisis, and forecast inflation and employment to remain below target.
Haldane, considered the most aggressive member of the Bank of England’s Monetary Policy Committee (MPC), recognized the possibility that inflation will stabilize as vaccines roll out and normalcy returns. He added that disinflationary forces may even return if pandemic risks persist.
“But to me there is a tangible risk that inflation will prove more difficult to tame, forcing monetary policymakers to act more assertively than is currently priced in financial markets,” he said.
“People are right to warn of the risks that central banks are acting too conservatively by tightening policies prematurely. late. “
The return on the UK 10-year Gilt rose to 0.816% after the release of the speech, while the 5-year and 2-year Gilt rate rose to 0.396% and 0.121%, respectively.