Donald Rumsfeld would have enjoyed the Inflation Report presentation this week . “There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things, we do not know we don’t know.”
After this week, one should add – there are things we wish we didn’t know we don’t know ie the things we now know the Bank of England doesn’t know.
Economists and analysts were looking forward to the Bank of England Inflation Report for some steer as to the Bank and MPC thinking on inflation and recovery within the economy.
But the Governor was giving nothing away. The fan chart forecasts were displayed. The bank was making projections but projections as a “probability distribution of possible outcomes rather than a single path.” A poisson distribution – we know as much about the economy, as a fantail guppy in a fish tank.
As the Governor said “Many things could happen, it is unwise for anyone to say we know what is going to happen. Trade and output, there is just as much chance the output will be up, just as much chance it will be down.”
“How will things work out? None of us know how this will work out. It is not like a typical business cycle. It is bank and balance sheet related. If there is a recovery, will it be sustainable? We don’t know.”
“Nobody can anticipate the future with any certainty. We are not hedging our bets we are presenting a true statement of the risks as we see them. We are not pretending to know what will happen. “
“It is not that we know nothing – we know quite a lot” [but what is going to happen is not included amongst them.]
David Smith asked a question about the Bank’s assumption on the trend Rate of Growth of the British economy. The Governor was equally oblique in his reply: “We want you to have a range of numbers – not to focus on one number.”
Yeah, but we have to have some idea. We know we don’t know exactly what will happen but we have to have a base line forecast or main stream scenario as a guide. The Governor suggested “others” should present a range of possibilities rather than a single point forecast. Let’s hope not. As it is hours are spent analysing the Bank fan charts to estimate the base case.
Alan Greenspan in central bank speak once said : "if you think you’ve understood what I was saying, I obviously didn’t explain myself properly." On this occasion, the Governor explained himself properly, we understood what was said and it was very worrying.
Bank of England Inflation report May – Web cast watch
BOE inflation report – fishtails and fantails – an estimate of the base case.
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Economic news and analysis : no politics, no dogma, no polemics, just facts some fun.