Different remits produce similar policies -British, U.S. central bankers

By Jonathan Spicer

BOSTON (Reuters) - The U.S. Federal Reserve and the Bank have set monetary policy in similar ways regardless of their contrasting official mandates, top British and U.S. policymakers argued at a forum on how central banks can lower unemployment.

David Miles, an external member of the Bank of England's Monetary Policy Committee, on Saturday threw his weight behind an argument made a day earlier by Boston Fed President Eric Rosengren.

Miles said the BoE's greater formal focus on inflation had not led it to pursue a tighter monetary policy than that sought by the U.S. central bank, which beyond inflation must also consider unemployment.

Miles's comments come a few weeks after British Chancellor George Osborne tweaked the central bank's remit.

Osborne gave more explicit backing to the bank's practice of ignoring short-term inflation overshoots. The changes also pave the way for the next Bank governor, Mark Carney, to use more aggressive communication strategies like those followed by the Fed and the Bank of Canada, which he currently heads.

Miles, speaking on a panel at the Boston Fed alongside two other Fed policymakers and Lars Svensson of Sweden's Riksbank, played down the practical difference that central bank mandates made. His speech drew on technical models he first presented publicly in February.

"A wide range of weights placed upon real variables - output and employment - in the central bank's objectives can today give rise to rather similar monetary policies," he said.

"This might be an important part of the explanation for why the Fed and the Bank, two central banks with rather different formal objectives, have set monetary policy in such similar - and extraordinary - ways," he added.

In officially keeping one eye on unemployment, the Fed is unusual in a developed world where central banks such as the BoE are typically tasked solely with maintaining price stability.

Rosengren, who like Miles is on the dovish wing of their respective central banks, on Friday strongly defended the Fed's dual mandate of full employment and price stability. He argued the Fed's inflation record over the past 15-20 years has been as good as or better than European central banks.

Highlighting the records of the BoE, the Riksbank and the European Central Bank, Rosengren went so far as to suggest that central banks that focused only on inflation may want to consider adopting a U.S.-style dual mandate.

He said such a strategy would, for example, make it easier to publicly explain buying bonds when inflation is running above target, as that trio has done in the wake of the global recession.

Miles is the strongest advocate of more asset purchases to boost Britain's flagging economy at the UK central bank, and in a television interview earlier this week he said monetary policy should be "very, very expansionary".

On Saturday, he did not address the immediate outlook for Britain's monetary policy or economy.

(Additional reporting and writing by David Milliken in London; Editing by Chizu Nomiyama)

Source: http://news.yahoo.com/different-remits-produce-similar-policies-british-u-central-170820510--business.html

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