Central bankers are experiencing a complete loss of credibility

Yesterday turned into a fascinating day as both the Bank of England and the European Central Bank faced the same problem. They both did the same thing.

Accordingly, the Governing Council today decided to raise the three key ECB interest rates by 50 basis points and it expects to raise them further.

Although the Bank of England was more circumspect with the rhetoric. Perhaps because unlike ECB President Largarde it had remembered the words of Mario Draghi ( “We never pre commit”). Anyway the ECB backed it up with this.

In view of the underlying inflation pressures, the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy.

But got a response like this.

Out of all the outsized reactions to the ECB yesterday, Italian bonds take the biscuit BTPs rallied 40bps yesterday (40!)  ( @CNBCJou )

That is a market saying we do not believe you! Bond  markets do not have to go the same way as official interest-rates but there are two ways of looking at this. One is simply to note a rally of 3 points. The other is for the argument that ten-year yields represent a type of forecast of future interest-rates. So there is something of a 1.4% swing here as we have 0.5% up plus a promise of another 0.5% seeing a 0.4% fall. How did the words of President Lagarde get treated with such disdain?

Press Conference Confusion

President Lagarde got into trouble with the first question which is below.

I’m interested in knowing whether there were any calls to commit for longer, potentially flag a less aggressive stance, or say nothing at all, given that you also say that your decisions are data-dependent.

That was a very good question and the immediate response was this.

 I would just remind you that our decision is not the decision for March.

Having now formally told us twice that March would be 0.5% that was quite the take.Then the waffleometer was fully tested before this.

Steady pace: we increased rates by 50 basis points in December, we increased rates by 50 basis points in early February, and we intend – which is a strong word; it’s not an absolute, irrevocable, unconditional commitment, but it’s a strong word – we intend to raise by 50 basis points, and that is what was meant in December by this steady pace reference that you find, yet again, in the monetary policy statement.

Quite what a “strong word” means if she does not raise by 0.5% in March will be a subject for my financial lexicon for these times. Then she inadvertently admitted the vote was not unanimous.

very, very large consensus today

Whilst the first question was rather good the second was savage.

could one potential conclusion also be that you have already reached the peak in interest rates at that time?

That was a complete dismissal of the Forward Guidance provided by President Lagarde. Suddenly the consensus hype morphed into this.

I have to tell you that there was general agreement

Then this.

Where there was discussion and not full agreement was on the way in which we communicate it.

In response to a question pointing out markets were already ignoring her we got perhaps the most extraordinary response of all.

First of all, we are data-dependent, and we know that we are getting a projection exercise at our next March meeting, but we are also data-dependent when we look at underlying inflation elements.

As I have pointed out many times you cannot pre commit and claim to be dependent on data you do not yet know. Then even for her we got something extraordinary.

This is what we are saying when we say we ‘intend’ to, which is why the word is pretty strong.

Okay so there is doubt which immediately disappeared.

Now, in Davos I did say that we shouldn’t be doubted

In fact she then seemed to be trying to set a world record for use of the word. But we were left with two situations.One is that the previously rather supine press corps seem to have enough of her rhetoric and are exposing her failings.Second financial markets are simply ignoring her.

Forecast Failures

If we now switch to the Bank of England we can now observe another issue which is that the supposedly technocratic central bankers are not very good at one of their main roles. We can start with this.

Although UK quarterly GDP growth in 2022 Q3 had been revised down to -0.3% in the Quarterly National Accounts, it was stronger than had been expected at the time of the November Monetary Policy Report

So they got the third quarter wrong quickly followed by a similar confession about the fourth.

Bank staff now expected GDP to have grown by 0.1% in 2022 Q4 as a whole, stronger than at the time of the November Report.

This matters because their doom ridden forecasts were grabbed enthusiastically by the media in their role as moths to the flame. Then we get an even bigger confession of failure and the emphasis is mine.

But this is a much shallower profile for the decline in output than in the November Report, in part reflecting a reassessment of the outlook for consumption in light of the recent strength in the labour market, as well as the decline in wholesale energy prices. Four-quarter GDP growth picks up to almost 1% by the end of the projection, although growth is expected to remain well below pre-pandemic rates.

The first table shows a fall of 1% in GDP rather than the previous 2.6% which is quite a change in only three months. At that rate of progress we will have strong growth by the time we get there! By the way I do not believe that but there is an issue in that the error was much larger than the new forecast of decline. This matters on two counts and the first is how the media presents it.

This isn’t one of the main charts in the

forecasts today but it might be one of the most important. Come 2026 the UK economy will still be smaller than it was in 2019. Another seven years of lost growth. ( @EdConwaySky )

Ed is one of the better journalists but even he has started “will” about a forecast 3 years ahead by a body which has just got not only the past 3 months wrong but the three months before that.

This particularly matters because it is the central bankers who tell us that expectations are important often suggesting they matter more than actual numbers.So ironically they should be appalled by their own forecasting failures.


There is a lot to take in here but the main point is that central banks have lost control of both the narrative and the markets. The latter must be especially galling after the Trillions they spent to gain control. Although there is an irony as their enormous bond holdings had a good day. Having spent so much time majoring on expectations and guidance this leaves them in quite a mess. But what do you expect when this happens via President Lagarde.

 Inflastion is a “hump” ( it soars)

Interest-rate rises are “very unlikely” ( she now boasts about raising then)

Interest-Rates will rise by 0.5% in March ( or perhaps not)

This is how they end up after all the interest-rate rise rhetoric having to say this.





30 thoughts on “Central bankers are experiencing a complete loss of credibility

  1. So GBPEUR is now priced in to the downside, but then the chart tells us that anyway with that Kamakwasi hammer in September 22. To a certain extent, the BoE seems to be talking down Sterling but for what benefit? Exports? I don’t see floods of foreign investment now that the UK is for sale. I wonder what could be putting them off?

    • I don’t see much appetite for UK investment at this moment in time, we havent the labour force to deal with business as we have cut off all the foreign labaour force and there is too much uncertainty for the next 2 years under a conservative GOV who don’t know how to push for growth.

  2. Hi Shaun

    Great article as always. So is Bailey being incompetent by talking down the pound again. Well not if his entire raison d’etre is to keep people impoverished.

    He’s already on the record admonishing them daring to ask for a payrise. And every time he opens his mouth the pound gets hammered and imported goods become more expensive.

    I did hope the media would start to see through these crooks. But after the bbc admitting its economists do not understand economics, then it could be a while.

    • It follows the same relentless pattern every time, bad financial statistics – pound goes down, good financial statistics – are interpreted somehow as badly affecting some economic factor and the overall effect is construed as negative for sterling, sterling against the euro is looking very weak and the breakout I’ve been warning about for years where EUR/GBP goes above 1.0 is not far off IMHO, and also I note with great interest and cynicism the 5year gilt yield has dropped from its Truss/Kwarteng coup peak of 4.8% to 2.92% today and looks destined for around 2.2-2.5% in time, a level I’m sure the government and the Bank of England will be very comfortable with, as it means there will be no big correction in house prices.

      I’m sure they have had no part in its sudden massive reversal.

  3. Not particularly related to today’s topic but the US has had another good non farm payroll.

    Expected +185,000 Jobs
    Actual + 517,000 Jobs.

    Stronger dollar and weaker pound. For a country supposedly going into recession they just keep adding jobs.

    • Are those real jobs or new openings? There’s question marks over the same position being advertised in in different states on the basis that whatever the role, it can be done from home, and that those job seekers only look for local positions. Once that role is filled in Austin, it is removed from Seattle, Charlotte, Tampa, St Louis, and Springfield. YMMV.

      • Massive ‘seasonal adjustment’. However the markets have reacted and taken rate cuts this year off the table. USD strengthens against EUR and GBP, but GBP also falls against EUR after BoE’s performance yesterday.

  4. Inflation harms ordinary people far more than ZIRP, which took house prices to unrealistic highs, encouraged those who could really not afford it to inveigle themselves in a mountain of debt, debt which, when the correction came, was always going to land them in serious trouble.
    It is in my view imperative that we fight inflation hard, to bring it back into a reasonable range (2-4%) ASAP.
    The quicker we do it, the fewer fixed-rate periods will expire, & when interest rates can be brought down, the easier it will be for people to refix.
    There are always victims, & there will be if what I suggest is done, & I’m sorry that’s the case.
    The Government has printed money beyond belief because of its covid response which I said at the time was wrong, & which more & more agree with now.
    It is this extra money which has caused inflation, (the country doesn’t any richer just because there are more pounds on the go; our currency value is inversely
    proportionate to its quantity) & which is causing your misery now.
    Printy=printing out of that misery just compounds the inflation, although we may well see it in another wave.
    It was necessitated by the first wave of excess cash causing price rises.
    Not only did we absolutely need a minimum 0.5% interest rate rise yesterday, but it may be that, in order to bring inflation under control, we have to head North of 6%.


    • Hi therrawbuzzin

      The problem the central banks face is of their own making in two ways. First they ramped the various supplies of money and then rather than taking away the punch bowl when the party got started they resorted to the Transitory excuse and looked the other way.

      Rises now will impact in 2024 in the main so we may simply be crunching that year.

      • Seems to me Shaun, they looked the other way, then took away an empty punch bowl. Too late; the damage is done.
        Not long to a second lost decade.
        What an absolute shambles.

    In criminal or civil court cases, where a defendant has the right to trial by jury, it is not just whether the defendant has broken the law which the jury has to decide, it is also the case that the jury has the right to decide whether the law that was broken is or is not just, & if it decides that the said law is unjust it must be repealed.
    This is in the ORIGINAL Magna Carta (not subsequent Magna Carta Acts of Parliament.
    It long predates parliament, & is constitutional law which parliament cannot repeal (since it is not its own Act)
    This may seem pedantic, but what it actually means is that Parliament IS NOT SOVEREIGN, it is subordinate to the common man, who can strike out Acts of Parliament by jury.

    Remember that, if councils or parliament tries to use unjust coercion to force free people to act in certain ways, we can overturn its decisions.


    This means that it is not only right to disobey unjust laws, it is your duty.

    WE should decide.

  6. Hello Shaun,

    Sorry do you mean they might have had some idea that people think they’re usless?

    Mush have come from the PM as they are so far up that ivory tower people look like ants ( and treat them accordingly ) .

    Masters of the Universe wrong? , heavens above !


    • “Masters of the Universe” they are still around pulling the strings keeping the poor poorer and the rich richer the only difference at the moment is they have managed to prevent another meldown and financial crisis but many have been wondering whether we are close to one.

      As for the british economy the BOE haven’t given us much optimism apart from stating the recession nthis year may not be that bad but at the same told us not to expect much in the next few years.

      The only thing I can add is I hope things don’t escalate in Ukraine otherwise things could got very nasty for us all.

  7. One thing Bailey did highlight which has caused serious problems to the UK economy is the baby boomers in the 50s and 60s now retired and there have been a good percentage of the workforce in the mid 50s or ealy 60s decided to take early retirement which is mentioned in this article..


    With a little hindsight I think it’s been a mistake to allow so many people to be able to retire in the 50s and this is more relevant to the public service workforce. Being self employed I never agreed to this policy and in fact believed it couod cause a problme further down the line with a tight labour force which is now has. Neither do I think it will be that easy enticing those now retired back to work as there is more stress today in todays workforce and once people have been retired a year or two they lack the enthusiasm to go back to work.

    • Hi Peter

      The issue of public-sector pensions is a live one. After all inflation linking was very valuable in 2022 and looks very likely to be the same this year. I have never thought it is properly valued in the balance between private and public-sector pay. To that has been added the issue of early retirement as you say.

      The way that many aspects of employed work has become so stressful needs to be looked at as well I agree.

      • If large numbers of people are choosing to leave the workplace & eke out a lower income, rather than working a few extra years to stuff their pensions, which has traditionally been the case, shouldn’t we find the cause?

        Is it because employers see the elites treating people as surplus to requirement, to be kept down, & find the work environment toxic?
        Why would anyone who doesn’t absolutely have to, work for the likes of Amazon?

        Have these people found social values changing, don’t believe in the neo-Marxist ideology being pressed at every opportunity in places like the BBC & other legacy media, & want to withdraw from society as a whole?

        Is it because Chancellors of every hue have taken delight in raiding the pension pots THEY SAID THAT WE’D NEED 40 YEARS AGO, and along with that thievery have done every possible to destroy their value, so they want to take what they can whilst there is at least something still there?

        Any one of those would be enough to encourage people who can, to leave the workplace; we are “fortunate” enough to have all three.

        Modern UK society is sickeningly sick.

      • It may be that ‘early retirement’ is an euphemism and correlates to the spike in excess deaths now being reported. This of course will have a beneficial effect on pension providers and in practice means that the ‘vaccines ARE working’ as intended.

  8. Censorship?
    These posts of mine were removed from the BBC:


    Why have there been no named winter storms this year?


    There is no “empirical” climate change data; it is homogenised, infilled & tortured otherwise until it surrenders.
    From You.Gov
    “The UK is required to report its estimated greenhouse gas (GHG) emissions”
    Estimations are not empirical data.



    URL of content (now removed):



    Why have there been no named winter storms this year?


    Why has the lake that NEVER freezes frozen over?


    This type of censorship is found only in totalitarian dictatorships, as it is the only place requiring the absolute shutdown of dissenting thought.

  9. Censorship?
    These posts of mine were removed from the BBC:


    Why have there been no named winter storms this year?


    There is no “empirical” climate change data; it is homogenised, infilled & tortured otherwise until it surrenders.
    From You.Gov
    “The UK is required to report its estimated greenhouse gas (GHG) emissions”
    Estimations are not empirical data.

  10. Pingback: Shaun Richards - Central bankers are experiencing a complete loss of credibility - Brave New Europe

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