Their inflation forecasts are based on the markets' own expectations
The bank rate. Gertjan Vlieghe, a member of the BoE's External Monetary Policy Committee between 2015 and 2021, reflected the shortcomings of this approach in a 2019 speech: “We communicate what we think we can do, showing you a forecast of what will happen if we do something else. » That's pretty confusing. One option for the BoE is to highlight its inflation forecasts based on interest rates remaining at their current level. That helps give markets an idea of the inflation challenge the BoE believes it faces. This is useful since the MPC's fan charts, which show a range of projected outcomes, also tend to show that inflation will eventually return close to its 2 percent target over its forecast horizon. This confuses the market about where rates should go.Another option, as Vlieghe advocated, is to show forecasts using the MPC's preferred path for interest rates over annual horizons, which would also be published. The US Federal Reserve, the Reserve Bank of New Russia Mobile Number List Zealand and Norges Bank are among those doing something like this. Being more explicit about its likely rate path would help everyone better evaluate the BoE's potential actions. There is also a procedural benefit to this approach. The high potential for disagreement over a preferred rate path among MPC members could prompt a more robust debate on the economic outlook. That's particularly useful in a time of uncertainty, when channeling diverse points of view, over herd thinking, becomes more important.
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The BoE could also adopt something similar to the Fed's "dot plot." The Federal Open Market Committee, which sets policy, anonymously publishes members' aggregate economic forecasts and their annual preferred rate path. The requirement to produce individual projections could lead to more complicated debate in the committee as members take more ownership of their forecasts. However, additional information can, and at times has, fueled further confusion. Berenberg, a bank, suggests that a shift to central forecasts based on no rate change along with Fed-style “dot plots” could be the best combination for the BoE. Whatever the approach, at a minimum, the BoE's forecasts should tell us how it expects the economy to evolve and the rate path needed to achieve its target.
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