Mark Carney’s speech on Tuesday, although addressed to the Toronto society of chartered financial analysts on the somewhat technical subject of forward guidance, might also implicitly convey a broader message or two to the British on monetary policy. As this will be his first speech since the announcement that the present Governor of the Bank of Canada will become the Governor of the Bank of England on July 1, 2013 (a slightly odd way to celebrate Canada Day), the British press will be able to pore over it for clues.
In the private sector, Mr. Carney said, it is more trouble than it’s worth for companies to announce what they expect their earnings will be in the near future. Such “guidance” does not usually add to a company’s value, its return to its shareholders, or stabilize share-price volatility. It may even be a distraction for managers, tempting them to neglect the company’s fundamental needs.
The bulk of the speech, however, was devoted, by contrast, to central banks, which owe it to the general public of their countries to explain their overall policy and strategy. In his view, the Bank of Canada and its equivalents elsewhere should indeed communicate. It is not at all clear to what extent Canadian householders have taken to heart Mr. Carney’s sensible warnings about excessive household debt, but it’s certainly worth trying. By and large, Canadian corporations have not moved in response to his remarks about “dead money” on their balance sheets; the bank’s most recent Financial System Review, issued last Thursday, says that corporate leverage “is at an all-time low.”
Some British commentators have noticed Mr. Carney’s openness to a monetary policy called nominal GDP targeting, under discussion in the U.K., but in his speech to the CFAs he sounded quite reserved about NGDP and (in a footnote) its destabilizing potential.
Mr. Carney is right to be conscious that he now has two different audiences to bear in mind. Let us hope he is ready for Fleet Street ferocity, as well as for British policy wonks.
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