Andrew Haldane, chief economist and executive director of the Bank of England, Monetary analysis and statistics
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UK bond yields soared on Friday after Bank of England chief economist Andy Haldane warned that inflation could become difficult to control, leading to more assertive political action.
In a recorded lecture published on Friday, Haldane noted that there were risks of both high and low for inflation prospects, but warned that an inflationary “tiger” had awakened.
“The combined effects of large unprecedented shocks and unprecedented degrees of political support have lifted him out of his sleep. In this environment, the taming of tigers faced by central banks is difficult and dangerous,” said Haldane.
Global markets were agitated last week due to a 10-year increase in US Treasury yield, driven in part by rising expectations of inflation and economic growth as Covid-19 vaccines are launched and pent-up consumer demand is potentially released.
Earlier this week, US Federal Reserve Chairman Jerome Powell sought to moderate concerns that the Fed would make monetary policy conditions more restrictive in the face of rising inflation. Powell promised to maintain his unprecedented accommodative stance, adopted in order to lift the economy out of the coronavirus crisis, projecting that inflation and employment would remain below target.
Haldane, considered the most aggressive member of the Bank of England’s Monetary Policy Committee (MPC), acknowledged the possibility that, as vaccines are launched and normality returns, inflation will stabilize. He added that disinflationary forces may even return if the risks of a pandemic persist.
“But for me, there is a tangible risk that inflation will prove more difficult to tame, requiring monetary policy makers to act more assertively than the price currently practiced in financial markets,” he said.
“People are right to warn of the risks of central banks acting too conservatively by stiffening policy prematurely. But for me, the biggest risk right now is the central bank’s complacency allowing the (big) inflationary cat to get out of the bag. “
British 10-year Gilt yield rose to 0.816% after the release of the speech, while 5 and 2-year Gilt rates rose to 0.396% and 0.121%, respectively.