pokerunblocked| Bernanke urges the Bank of England to give markets clearer guidance on interest rates

Bernanke urges the Bank of England to make interest rates clearer to the marketPokerunblockedGuidance

Ben Ben Bernanke has called on the Bank of England to consider publishing its UK interest rate outlook as part of a comprehensive review that is expected to prompt the central bank to make a "once-in-a-generation" overhaul of the way its forecasts are made and communicated.

The former Federal Reserve chairman said the Bank of England might issue a scenario showing the best way to meet its 2 per cent inflation target if market interest rates or unchanged policies confuse its message. In the 86-page report, Bernanke also made 12 separate recommendations for the way the Bank of England publishes its economic outlook.

While the review said the Bank of England's forecasts during the recent inflation shock were no worse than those of other central banks, it added that the infrastructure underpinning these forecasts urgently needed to be upgraded. The report said the Bank of England should abolish the fan chart that has been at the heart of its policy-making for more than 20 years.

Mr Bernanke said policymakers should be "particularly clear" when they thought market expectations for borrowing costs were "inconsistent with their views on the outlook".

The Bank of England has launched a nine-month investigation after members of the ruling Conservative Party party and independent economists criticised the institution for being slow to deal with the worst inflation in 40 years.

Bernanke said the Bank of England can learn from this experience. He said that while the Bank of England's forecast "did deteriorate significantly", its recent challenges were "hardly the only one".

Bailey, governor of the Bank of England, welcomed the report and said he would make a "once-in-a-generation" reform of the bank's approach. He said officials are committed to taking action on the 12 proposals put forward by Bernanke, but working out a detailed plan will take time and further consultation.

Dales, chief UK economist at Capital Economics, said it was a "real shame" that the review did not explicitly recommend that the bank use its own interest rate forecasts rather than market expectations. "forecasting interest rates will be the clearest way for the bank to communicate what it thinks it needs to meet its 2 per cent inflation target," he said. "

Mr Dales added that he thought Mr Bernanke was "generous" in assessing the Bank of England's forecast errors.

For most of the past three years, inflation has exceeded the Bank of England's forecast

The Bank of England said it would provide an update on what changes would be made by the end of the year. Claire Clare Lombardelli, who will join the Bank of England in July as deputy governor of monetary policy, will lead the response. The reforms will be implemented gradually, almost certainly after the next election, in which the opposition Labour Party (Labour party) is expected to win.

Mr Bernanke did not advise the nine members of the Monetary Policy Committee (Monetary Policy Committee) to chart their forecasts for interest rates, just as he did with his "dot plot" forecast at the Fed. Several interest rate setters at the Bank of England have questioned the use of a Fed-style dot chart in the UK.

"the right model will not be the Fed's dot map because the Fed does not consult staff and policy makers like the Bank of England (Bank of England)," he told reporters before the report was released. "on the contrary, if central banks are going in this direction, a better model may be the central banks of Sweden, Norway, Canada, New Zealand and so on."

Ben Bernanke, former chairman of the Federal Reserve (federal Reserve), is not as ambitious as we had hoped in his assessment of the Bank of England's forecast operations. He suggested making more use of the situation. But while he said the Bank of England should have a better understanding of the future policy path, he did not advise the Bank of England to issue interest rate forecasts. This is a missed opportunity. The Bank of England will need time to implement these recommendations. Changes related to communications seem to be a problem that the market will have to deal with in 2025. "

However, he said the Bank of England should release other information along with the central forecast, and the central bank has promised to take action. "other situations will help the public better understand the reasons for policy choices," he said. "

"in the long run, one thing to consider is to have your own forecasts for interest rates," Bernanke said. " The use of the current convention may "obscure the interpretation of what the Committee is trying to express".

While he said the publication of the Fed's own policy forecasts would be "significant" and should be left to "future deliberations", he rejected the idea that the market would see any interest rate path as a firm commitment. While experience suggests that financial markets listen and focus on interest rate forecasts, they certainly do not see them as promises or absolute certainties. We know this from the Fed, "he said."

In addition to using the market interest rate path for core forecasts, the Bank of England should publish at least one alternative policy scenario and one or two possible risk scenarios, he said. These can be used to indicate the interest rate path that MPC believes is most likely. The bank said it would study the proposal.

The proposal appears to operate in a similar way to the Swedish central bank (Riksbank). It publishes core forecasts for the economy and plans policy paths supported by other scenarios when inflation is weak or strong.

Part of the report attacked the Bank of England's economic model, infrastructure and communications. Including software and models used to generate predictions that are "outdated" and "not fully maintained". He said that "expedient measures" led to a clumsy and inflexible system that limited the ability of staff to conduct useful analysis.

Bernanke suggested that the Bank of England replace or overhaul the economic model that underpins its forecasts. This will require a "significant increase in staff time and resources". Bailey said the upgrade was under way as part of a £30 million investment in its software and systems.

The former Fed chairman said sector charts-showing a range of probabilities around its core forecasts-should be "eliminated" because they "convey very little useful information".

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