One of the signal achievements that burnished Mark Carney’s halo during his tenure at the the Bank of Canada was the introduction of forward guidance – a conditional pledge, issued at the height of the global recession, to keep interest rates steady for some time, under certain economic conditions.
So it was no surprise that Mr. Carney would take this no-cost confidence-booster to Britain when he took the helm of the Bank of England last summer. Scarcely a month into his new job, Mr. Carney took a page out of the U.S. Federal Reserve’s playbook and tied future monetary policy directly to the jobless rate – in what we’ll call his 7 per cent solution. As long as inflation remained tame, interest rates would not budge from an historic low of 0.5 per cent until unemployment fell to 7 per cent. That happy event, the central bank had concluded, might not happen before mid-2016.