The Monetary Policy Committee's search for guidance (II)
The minutes of the July monetary policy meeting confirm that the MPC is indeed focussed on recent events in financial markets - and how they might guide policy going forward.
They also flag up something in my earlier post: That we should not only think about the forward guidance as a way to loosen the Bank of England's policy.
Its biggest value today may simply be to help the Bank stick with the policy it already has - in the face of market headwinds from across the Atlantic which might otherwise throw it off course.
These are the points from the minutes that stood out for me.
First, Mark Carney is encouraging the Bank's policy makers to think about their policy tools in a more holistic way than Sir Mervyn King did.
"Given the already large size of the asset purchase programme [the notes said] there was merit in pursuing a mixed strategy with regards to the different policy instruments at the Committee's disposal."
When the Funding for Lending programme started last year, the then governor was keen to keep it in a separate compartment from quantitative easing and interest rate policy.
The minutes suggest that that is now changing. Under Mark Carney, the MPC will be considering the full sweep of policy options available to affect both the supply of credit in the economy and the level of demand.
That means not just more quantitative easing - which Mark Carney sounded a bit sceptical about in his testimony to the Treasury Select Committee, but also Funding for Lending, forward guidance and - potentially - elements of the Bank's macro-prudential policies regarding the banks.
That is probably also why the "doves" on the committee thought it worth waiting for that broader discussion next month rather than voting again for more QE. For the first time in a while, the vote in favour of no additional action was unanimous.
Interestingly, there does not seem to have been a formal vote on giving that guidance to the markets. I wonder whether that will change - after all, the guidance did represent an effort to loose monetary conditions, even if it was not a formal change in policy.
Second, the governor has not yet persuaded a majority of the committee that UK policy needs to be looser. In fact, it is not even certain, on the basis of these minutes, that Mark Carney himself thinks that the economy needs more stimulus, though I would strongly suspect that he does.
The minutes say that "most members...think the policy setting is appropriate" but "others" would like to see more stimulus. We don't know whether the number of "doves" has risen or fallen since Mark Carney took his seat at the table, but it's fair to say it is less than five.
However, the minutes also make clear that all of the the MPC would like the economy to grow faster. The implication is that a majority might well come round to more stimulus, if the recovery doesn't pick up momentum in the second half of the year, as the Bank currently expects it will.
Finally, there's the point I highlighted at the start. Even if some in the MPC have doubts about further stimulus (especially of the QE variety), the committee seems united in NOT wanting the Bank to be rushed into premature tightening by the Fed.
The minutes say: "The recent rise in market interest rates, were it to be maintained, would represent such a premature withdrawal, but the proposed statement from the Committee should help to prevent that."
And indeed it did. Give or take. Most of the "action" in the next meeting will surely be about how, exactly, forward guidance can help the MPC any more.