Art of central bankers dissenting: BoE vs Fed

Bank of England released minutes of its MPC meeting held on 10 June 2010. Andrew Sentance, an external member dissented and wanted BoE to raise Ban rate by 25 bps.

Now BoE has this interesting way of presenting its minutes. In US, dissent is mentioned explicitly and also the dissenters also presents his reasons for the same. Like Kansas Fed President Thomas Hoenig again dissented in the June FOMC meeting. The statement said:

 Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly

More details will follow in minutes which will be released after 3 weeks. As Hoenig has been dissenting in previous meetings as well, let us see the dissent statement in minutes of April 2010 meeting:

Mr. Hoenig dissented because he believed it was no longer advisable to indicate that economic and financial conditions were likely to warrant “exceptionally low levels of the federal funds rate for an extended period.” Mr. Hoenig was concerned that communicating such an expectation could lead to the buildup of future financial imbalances and increase the risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly in the near term.

Mr. Hoenig believed that the target for the federal funds rate should be increased toward 1 percent this summer, and that the Committee could then pause to further assess the economic outlook. He believed this approach would leave considerable policy accommodation in place to foster an expected gradual decline in unemployment in the quarters ahead and would reduce the risk of an increase in financial imbalances and inflation pressures in coming years. It would also mitigate the need to push the policy rate to higher levels later in the expansionary phase of the economic cycle.

This is much more info than given in the April 2010 statement which is near same as June one.

Now in Bank of England, we only get to know the dissent in the minutes. Nothing is mentioned in the statement  which is released after the policy. See this June policy statement for instance. Infact the statement has nothing except for interest rate changes and these days it also talks about the scale of the asset purchases program.

Even in the minutes, the dissent is not explicitly attributed. So minutes would say some member has a different view but does not name him/her. The minutes go like this:

31 For one member, developments over the past month were consistent with a pattern which had been developing over the past year. Inflation had proved resilient in the aftermath of the recession, casting doubt on the future dampening impact of spare capacity on inflation. Demand had recovered at home and abroad, and the average growth of the main measures of UK nominal demand in recent quarters had been above typical pre-recession rates. Despite current uncertainties, for this member, it was appropriate to begin to withdraw gradually some of the exceptional monetary stimulus provided by the easing in policy in late 2008 and 2009.

32 Other members thought that changes to the balance of risks were insufficient to warrant a change in the stance of monetary policy. For them, the broad weight of evidence provided by a range of indicators of the outlook – including asset prices, the growth rates of money and credit, money spending, wage growth and estimates of spare capacity – continued to support the view that the current level of Bank Rate and stock of asset purchases financed by the creation of central bank reserves remained appropriate to meet the inflation target in the medium term. Furthermore, uncertainty over the nature and scope of the fiscal measures to be announced in the forthcoming Budget would be resolved by the time of the Committee’s next meeting.

33 The Governor invited the Committee to vote on the proposition that: Bank Rate should be maintained at 0.5%; The Bank of England should maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

Seven members of the Committee (the Governor, Charles Bean, Paul Tucker, Spencer Dale, Paul Fisher, David Miles and Adam Posen) voted in favour of the proposition. Andrew Sentance voted against, preferring an increase in Bank Rate of 25 basis points.

Again you can only guess that the views expressed in para 31 would be of Andrew Sentance. This is easy as there was one dissent. What if there are dissents by two people? Say one says increase and other says decrease? This happened in July 2008 policy but it was easy to tell who said what because of difference in opinion.  But what is someone says 50 bps decrease and other says  25 bps decrease? This happened in Feb-08 policy and was slightly confusing.

Quite interesting. How central banks communicate and show transparency differently. In UK may be they don’t want to pressurise MPC members and prefer not to convey the reason for dissent.  But it becomes apparent anyways, so may be they should say it. In US, it is all pretty open. Hoenig even has made a few speeches explaining his move.

One Response to “Art of central bankers dissenting: BoE vs Fed”

  1. Mr. Vaid Says:

    Thanks for the pointers. When India will see the day when RBI’s meeting details will be available in the website. When we will know what has transpired in the meeting? when we will know how have the projections are made and how come they arrived at the policy rate? Yes, they must be doing it rigorously in-house, but who stops them making it public? I hope sooner or later they have to do so but when’ll that happen is difficult to say…May be during Dr. Subbarao’s tenure…..He has shown a great leadership quality to this date and I hope he will set precedent before he moves on…

    Some of the RBI’s report contain dissenting note which is indeed a good read. It also shows the democratic way the commission operated. Dr. Surjit Bhall has given dissenting opinion in both the occasions of Capital Account Convertibility Report. Here is the recent one:

    Click to access 72250.pdf

    In the note he said “My overall conclusion is that the Committee has tended to look at issues in a gradual, incremental manner. Some are forward increments, and on these there is no dissent. Some recommendations are in the nature of politically correct but economically wrong tokenism, and on such issues there is dissent. Some recommendations are grossly inconsistent with the broad thrust of the Report; on such issues, the dissent is not minor.”

    In concluding he said “Finally, I want to register a complaint against an implicit assumption of the FCAC committee (and other government Committees that I have had the privilege of being a member) i.e. that the committee’s report should be cognizant of so-called political
    realities and prejudices. In my view, a committee is not doing justice to its selection if it is constantly anticipating the reaction of politicians, bureaucrats and policy makers. An expert committee report should be objective, even if it means that none of therecommendations are accepted. A failed Report might be the biggest sign of its success.”


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