WEBVTT - Andrew Bailey Talks BOE Decision, Possible Rate Cuts

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news you haven't heard. Thank

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<v Speaker 1>you so much for speaking to Bloomberg. Now. You've been

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<v Speaker 1>quite direct and suggesting that the BOE may cut rates

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<v Speaker 1>more sharply though the markets are expecting. Is that because

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<v Speaker 1>you're worried that markets won't be prepared for what's to come. No.

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<v Speaker 2>I think our forecasts are conditional on a number of things.

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<v Speaker 2>But one of the things that obviously our condition on

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<v Speaker 2>is we use the market curve to set them up.

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<v Speaker 2>So I think it's important that we know if we

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<v Speaker 2>find the forecast with the market curve produces the best judgment,

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<v Speaker 2>which has inflation below targets or above target, but not

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<v Speaker 2>to target at the at the sort of horizon we say,

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<v Speaker 2>so we say this is where we got to best

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<v Speaker 2>collective judgment. Is that now it follows I think that

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<v Speaker 2>this is a comment I made earlier that what we're

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<v Speaker 2>saying is if and if it is of course critical

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<v Speaker 2>here if the world evolves as you know that that

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<v Speaker 2>forecast suggests it was, well, probably the case would be

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<v Speaker 2>there for a less restrictive path of policy is conditional.

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<v Speaker 1>Everything is conditional. Is June and live meeting, all meetings alive,

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<v Speaker 1>So is June likely that's a different question.

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<v Speaker 2>I think the key points I would make is that

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<v Speaker 2>we have changed our view on the likely persistence of

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<v Speaker 2>inflation on the second round effects, and it's good news.

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<v Speaker 2>We think that we think there's there's evidence there to

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<v Speaker 2>suggests they will be less pronounced than we thought they

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<v Speaker 2>would be. But that's a judgment. And for me, I'm

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<v Speaker 2>now looking at particularly streaking indicators services, inflation, pay, and

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<v Speaker 2>the quantity side of the labor market to really judge

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<v Speaker 2>this persistence question, how it will.

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<v Speaker 1>Evolve the governor. Because you were up quite upfront about

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<v Speaker 1>market expectations, does that come from Ben Bernanke's review that

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<v Speaker 1>you will talk more about the more is to indicate

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<v Speaker 1>more to the markets. Also, what you're doing next, Well,

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<v Speaker 1>we're not.

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<v Speaker 2>Going to We're not going to implement the monanky review piecemeal,

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<v Speaker 2>so we was going to spend a few months really

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<v Speaker 2>sort of thinking quite hard about what we do. And

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<v Speaker 2>he raised the conditioning assumptions as a point. Actually, and

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<v Speaker 2>this question which I think all central banks wrestle with

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<v Speaker 2>in various ways, which is how do you actually sort

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<v Speaker 2>of represent a future profile of rates to set up

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<v Speaker 2>your judgment without sort of getting yourself into position where

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<v Speaker 2>you absolutely nailed on, as it were, for a view

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<v Speaker 2>of rates two years out, which of course is just

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<v Speaker 2>not realistic to commit to.

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<v Speaker 1>But can we expect more market commentary from you going.

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<v Speaker 2>Forward, Well, we had a particular I think we're in

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<v Speaker 2>a particular situation at the moment. I've said before it's

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<v Speaker 2>a high bar I think for us to sort of

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<v Speaker 2>come out and comment extensively. But I think the point

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<v Speaker 2>we had and we made, we've made today and I

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<v Speaker 2>think we have to make is look quite a lot

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<v Speaker 2>of them. When we do the analysis, quite a lot

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<v Speaker 2>of the market movement of like appears to have been

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<v Speaker 2>us in a sense originated. Now that there's always some

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<v Speaker 2>of that, of course, but it seems to be more

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<v Speaker 2>of it. And yet our analysis would be that inflation

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<v Speaker 2>dynamics here are different the inflation dynamics in the US

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<v Speaker 2>in a very different sort of situation in terms of

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<v Speaker 2>our economies. So there's a tension in there, and I

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<v Speaker 2>think that's the point we have to point out.

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<v Speaker 1>But this is basically because the FED maybe over promised

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<v Speaker 1>the cards in December and then couldn't deliver in terms

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<v Speaker 1>of two percent.

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<v Speaker 2>Well, no, I'm not criticizing the phone in any sense

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<v Speaker 2>or judging the FED. I think the US economy has evolved.

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<v Speaker 2>I mean that's the that's the fact. I mean, that's

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<v Speaker 2>how it's evolved. So I think the way it's evolved

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<v Speaker 2>has been, if anything, to sort of put in a

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<v Speaker 2>slightly starker relief the difference of inflation dynamics.

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<v Speaker 1>Governor, are you worried about the second round effects of

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<v Speaker 1>a cheaper pound, Well, I.

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<v Speaker 2>Mean the exchange rate hasn't moved sharply. Frankly, it's moved

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<v Speaker 2>a bit, and of course you'd expect that because it's

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<v Speaker 2>a relative price. So those points I make about different

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<v Speaker 2>inflation dynamics, so you'd expect somebody hasn't been sharpie. So no,

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<v Speaker 2>I'm not. We watch it very carefully, but it's not

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<v Speaker 2>something that I think. And by the way, as we

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<v Speaker 2>said and as we always do in setting up our

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<v Speaker 2>commentary on the conditioning assumptions, this time, actually the exchange

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<v Speaker 2>Act hasn't moved that much.

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<v Speaker 1>Governor, that there is an assumption looking at history that

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<v Speaker 1>once you continue cutting, now, without pre judging what you'll do,

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<v Speaker 1>can you give us an idea of how you see

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<v Speaker 1>the cycle different to Well.

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<v Speaker 2>One thing I would say about this, which is sort

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<v Speaker 2>of quite interesting, and it's something that we looked at

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<v Speaker 2>during US around. It's quite interesting in the history of

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<v Speaker 2>the NPC that most of the cutting cycles, cycles and

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<v Speaker 2>inverted commas have actually been prompted by some sort of

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<v Speaker 2>shock or other rather than being what I might call

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<v Speaker 2>a natural cyclical sort of we've reached the top and

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<v Speaker 2>now we go down the restrictiveness curve. So we don't

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<v Speaker 2>have a lot of I mean, I would just caution

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<v Speaker 2>there isn't a lot of sort of history, Realtor.

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<v Speaker 1>So what you're telling us is because you're not cut

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<v Speaker 1>in a recession, it could it could actually be one

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<v Speaker 1>and done.

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<v Speaker 2>Well, I think that would be unusual. But I would say,

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<v Speaker 2>you know, I said earlier, nothing's settled that there are

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<v Speaker 2>no fetter companies, nothing's ruled out.

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<v Speaker 1>Governor, what can you tell us about that? The play

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<v Speaker 1>between of course interest rates and QT, right, some may

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<v Speaker 1>find a confusion because they're pulling in different directions.

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<v Speaker 2>So the message we've was given with QT is that

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<v Speaker 2>QT operates in the background for us. We don't think

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<v Speaker 2>it has large impacts in terms of markets. But the

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<v Speaker 2>other point, and this is really the critical point. When

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<v Speaker 2>we sit down to decide on what the right interest

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<v Speaker 2>rate setting is. We take into consideration everything including markets obviously,

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<v Speaker 2>and markets will have absorbed if you like, and taken

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<v Speaker 2>into account the impact of QT. So in other words,

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<v Speaker 2>QT is is always there if you like. If there

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<v Speaker 2>is any effect from QT, we'll capture it because we'll

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<v Speaker 2>capture it and movement of markets, and then we will

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<v Speaker 2>set back crate to reflect that.

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<v Speaker 1>But you don't think it's confusing for markets this kind.

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<v Speaker 2>Of I don't think so.

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<v Speaker 1>So you're not you're not expecting it to end it

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<v Speaker 1>before the end of the year, to make sure that

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<v Speaker 1>there's no confusion in what you're trying.

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<v Speaker 2>To do, to my mind, any difficulty if we get

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<v Speaker 2>to the point when we're going to cut interest rates

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<v Speaker 2>to have QT going on as well.