UK Edition
Is the Bank of England running out of rhetorical firepower on interest rates?
Mark Carney was accused of being an “unreliable boyfriend” by Pat McFadden MP back in 2014.
At the time the criticism was levelled at the Bank of England’s shifting guidance. It had suggested that interest rates could rise in 2014. And then 2015. And then 2016.
And yet rates hikes came there none. In fact, interest rates are now lower than ever.
So, how should we take the latest hints that rates could rise this year? Is the Governor serious, or is something more complicated going on?
Some analysts have suggested that the Bank is trying to persuade the markets the rates will rise to boost the pound, which will help reduce inflation and thereby negate the need for a rate rise.
It's quite a complicated - and circular - game. And the key to its success is the extent to which the market feels it can trust the Bank's guidance.
The trouble is, the markets have been let down several times in the past.
In 2013 Carney arrived in Britain and said he would consider raising rates when unemployment fell to below 7pc. He thought it would take three years, but in fact it took only six months. Unemployment is now just 4.3pc, but rates are lower than they were four years ago.
In October 2015, the Governor told households that the Bank was "focussed… [on] raising interest rates" and that they should prepare for higher borrowing costs, though he noted this was a "possibility not a certainty".
Three months later he ruled it out, saying inflation was lower than expected and so there was no need to tighten policy.
Policymakers then signalled that they could raise rates around a year later - which would mean early 2017 - to prevent the economy from overheating. Any move in that direction was thrown off course by the Brexit vote in June 2016; the Bank responded to this - prematurely, some have argued - by cutting rates the following August.
By October last year MPC member Gertjan Vlieghe acknowledged that raising rates would ensure inflation was on target at 2pc in 2019. But he warned that the price in terms of lost economic growth and jobs was too high, so rates should stay on hold for the foreseeable future.
Six months later, rate rises were back on the agenda. Three MPC members voted for a hike in June and chief economist Andy Haldane said he considered following suit. The Governor said that rising business investment could show the economy is performing well and allow for rates to rise.
The pound rose. But in August the MPC voted to hold rates and cut its growth forecasts. The pound fell.
Yet now the MPC is talking once more about the potential need to raise rates. What should markets think?
Analysts wonder if this is a tactical ploy by the Bank of England.
HSBC believes central banks are now using words rather than interest rate changes to push the currency up, testing the effect on inflation and on growth in a way that is easily reversible before moving on to actually hikes.
BNP Paribas sees little benefit in a single rate hike and no prospect of a sustained series of hikes, leaving its analysts with the view that this is a bluff by the MPC - economist Dominic Bryant says the Bank is “talking the talk, rather than walking the walk”.
Markets moved on the MPC’s statement, so it has had some short-term effect at least.
But policies that is conducted by means of rhetoric may only work for so long. Soon investors may start to suspect the Governor is bluffing.
Even this latest particularly forceful announcement has only pushed the market's expectation of of a rate hike this year to 55pc. That is twice the level at the start of the week. But it also suggests that investors are far from convinced - and perhaps rather confused.