Bank of England and European Central Bank Reject Quantitative Easing

Strategic Insights -

The Bank of England and European Central Bank (ECB) have both declined to follow the Federal Reserve (Fed) in pursuing more quantitative easing (QE), sparking concerns about the impact on the global economy. Economics Professor at Dartmouth College, Danny Blanchflower, shared his insights on the decision, stating that the Bank of England's failure to implement QE early in 2008 was a significant policy error. Blanchflower expressed support for the Fed's decision, citing its focus on preventing deflation and reflating the economy.

Key Takeaways:

  • The Bank of England and ECB have rejected quantitative easing, whereas the Fed has implemented it to combat deflation.
  • Danny Blanchflower, a former member of the Bank of England's monetary policy committee, believes the Bank of England made a significant policy error by not implementing QE early in 2008.
  • Blanchflower supports the Fed's decision to implement QE, citing its focus on preventing deflation and reflating the economy.
  • He argues that the ECB's policy is influenced by a cultural bias against inflation, which is not a major concern in the current economic climate.
  • Blanchflower praises the Fed's chairman, Ben Bernanke, for doing an excellent job in protecting jobs through monetary policy.
  • The expert notes that the ECB has been slow to react to the economic crisis, and its policy is not working for countries like Ireland, Spain, and Greece.
  • Blanchflower agrees with the assessment that the only game in town is monetary policy, given the limitations of fiscal policy in addressing the current economic crisis.

Statistics:

  • The Bank of England's interest rates remain at a record low.
  • The European Central Bank's interest rates are also at a record low.
  • The Fed's quantitative easing program aims to inject liquidity into the economy and prevent deflation.
  • Oil prices are expected to rise to $100 a barrel due to the Fed's QE program.
  • Commodities prices are soaring globally, driven by the expectation of increased demand and a weaker dollar.
  • The ECB's inflation forecast for the next two years is below target.
  • The Bank of England's inflation forecast for the next two years is also below target.

Sources:

  • Bloomberg News
  • Danny Blanchflower, Economics Professor at Dartmouth College
  • Federal Reserve
  • Bank of England
  • European Central Bank