Posen's Pointed Exit Interview: Team GB Should Do More QE
Adam S. Posen, who will take over as president of the Peterson Institute for International Economics in January, has delivered a few provocative parting calls to action as he exits his post as an external member of the Bank of England’s Monetary Policy Committee (MPC). His comments favoring more aggressive action by the central bank in London should also be interpreted as a nudge to the Federal Reserve Board in the United States to do more to counter the sputtering economic recovery here, but we’ll have to see how Adam follows through when he returns to Washington at the end of the year.
Posen was recognized as the solitary inside advocate for more quantitative easing (QE)—having the Bank of England purchase longer term securities—to stimulate the sluggish British economy starting in the fall of 2010. The other MPC members then came around unanimously to his view and restarted the bank’s bond purchases last October.
In his exit interview with the Financial Times, featured on the front page in the United Kingdom, Posen has renewed his call for the Bank of England to go further, saying that officials should go beyond purchasing government bonds and purchase targeted private assets as well, to make it increase mortgage and small business lending. His comments echoed earlier points made in speeches that got a lot of play in the British press: "Making the Most of Doing More," [pdf] June 2012, and "How To Do More," September 2011.
(Similarly, our colleague Joseph Gagnon at the Peterson Institute has called on the Fed to purchase mortgage-backed securities in the United States to counter the disappointing growth of the last year.) Posen was careful not to judge the fiscal austerity measures being pursued by British Prime Minister David Cameron, but he repeated his assessment that in the short run they are more contractionary than many expected (as he had demonstrated in writing about what happened in Japan in the late 1990s and in comparing the recoveries of the United States and the United Kingdom in a speech last March [pdf].
Posen has a gift for pointed rhetoric. He said the Bank of England needs to abandon its “anguished religious ethics” holding that only elected governments, and not central banks, can buy private sector assets. “I personally view the teeth-gnashing and garment-rending about what’s fiscal and monetary as too much drama for too little content,” Posen said, adding that quantitative easing on government bonds had helped even though UK growth rates had been disappointing. Thus he leaves the Bank of England with a record of accomplishment. “I have no question in my mind that what we’re doing with QE is preventing things from getting much worse, but that doesn’t mean you couldn’t have an additional or better instrument,” he said in the interview.