The Markets


The Bank of England put its neck out and did a fair imitation of the U.S. Federal Reserve last week when it offered forward guidance tying tighter monetary policy to unemployment levels.

The Bank of England, under new governor Mark Carney, announced a big change in policy when it tied its record low interest rates to a fall in unemployment to 7 percent, something it only expects to happen in late 2016 at the earliest. 

The next reading of the unemployment rate comes on Wednesday and is unlikely to show much change from May’s 7.8 percent.

Nonetheless, Britain’s economy has shown signs that it is recovering more quickly than anyone expected only a few months ago, potentially challenging the BoE’s base case that a pick-up in demand won’t lead to a surge in hiring.

The bond market’s response to the BOE’s assurances that rates would remain low for some time was quite similar to the U.S. bond market’s response to similar declarations from the Fed: yields on Gilts – bonds issued by the British government – moved higher. 

Paddy Power, which bills itself as “Ireland’s biggest, most successful, security conscious and innovative bookmaker,” is taking bets on who will be appointed as the next U.S. Fed Chairman. On August 11, 2013, it gave the odds as: Larry Summers, former Treasury Secretary, 1-to-2; Janet Yellen, current Fed Vice-Chairman, 2-to-1; Roger Ferguson, President and CEO of TIAA-CREF and previous Fed Vice-Chairman, 12-to-1; and Don Kohn, current member of the Bank of England (BOE) Financial Policy Committee and previous Fed Vice-Chairman, 18-to-1.