BOE Governor Andrew Bailey Talks UK Inflation, Fed Policy

**Lisa Abramowicz** (0:02)
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I am here with Andrew Bailey, who is the governor of the Bank of England. And just a little bit wet after walking on that walk. I can say it was actually really impressive. You guys seemed unfazed, but it just kept pouring on you.

**Andrew Bailey** (0:18)
I'm just keen to take some of the rain back to Britain, although I think it has started raining in Britain now. But yes, we could take some back. But you had no mountains today.

**Lisa Abramowicz** (0:24)
No, no, no, today they've been completely swallowed. And actually, Catherine Mann had the same approach. So maybe we could take some of this back to England. Just want to get your sense. What was your takeaway from Fed Chairman Kevin Warsh's speech? Was it something that was a message that you were hoping for or that you thought was appropriate?

**Andrew Bailey** (0:40)
Well, first of all, obviously it's a cardinal rule, we don't comment on each other's monetary policy. But let me say, I think in the broad position that Chair Warsh took, I thought it was a speech of real substance. I think he made some very important points about the framework of monetary policy. I think he made very important points about forward guidance and how he's thinking about it. So I commend it because I think it was a speech of real substance.

**Lisa Abramowicz** (1:04)
He talked about forward guidance as being somewhat antiquated to a moment that's much more complicated and that it can be more confusing and complicate monetary policy and might have led to the 2021 delay in hiking rates to combat inflation. Do you agree? Do you think that forward guidance has outlived some of its purpose, including reaction function to some degree?

**Andrew Bailey** (1:25)
Well, I think we all wrestle with this issue. It's a really important issue. So the distinction I try to draw is this. Monetary policy by its nature is in the business of making policy forwards. We can't influence what inflation is going to be tomorrow. We can influence what inflation is going to be at points further into the future. So we have to obviously look to the future and we have to describe our policy in terms of the future. But and Joe Walsh made this point, there's always uncertainty, there's even greater uncertainty, I would say, at the moment, about particularly about the immediate situation. There is always uncertainty and therefore our decisions are always conditional.
I think the problem with forward guidance, and I think Joe Walsh put his finger on this, is that it tends towards making unconditional statements about policy. And I think that's the problem and I think that's the danger. And I agree with him.
Whether it's out of dates, good question. I think the 2021 point, to me, as a veteran of that period, is COVID was such a huge shock that we had to, in a sense, and look, there was huge demand on us to sort of, in a sense, step forward and put the tools to work, and to do everything we could to put the tools to work. We're not in that world now. And I don't think unconditional statements about policy work in that sense, but we have to describe what we're doing in terms of our views on the future, and certain though they sometimes are.

**Lisa Abramowicz** (2:50)
It was notable to me that Kevin Warsh, Chair Warsh, talked about the components of PCE, and that it was broad-based in the US. Is it as broad-based in the UK., or is it a different inflationary backdrop due to AI, the investment there, and some of the growth backdrop that's very different for the US and for the United Kingdom?

**Andrew Bailey** (3:10)
Well, there is a different growth story.
Having said that, I think AI is critical here, because we need to see faster growth in the UK., we need to see faster productivity growth, and I think AI and robotics are a critical source of that.
I think the point that Joe Walsh made, which is very important, and I'll apply this to the UK., is he made a key point that he is looking to see whether, I think he used the word trend inflation, but underlying inflation is going back to target. And I think also over what period of time. And that's our issue as well. We are looking at the second round effects of the energy shocks. We're looking at the question, do we expect inflation to return to target over what time, and is that time and that trend sustainable and consistent with the inflation target? Now, in the UK situation at the moment, I would say so far, I think we're seeing quite subdued second round effects. I think we've seen a softening labor marketer for some time now. I think the second round effects are at the moment quite subdued. And that's why I've taken the view that I think we can watch this situation for the moment. But we have to, every meeting we have, we have to come back to it.