BoE's Bailey defends central bank flexibility, warns of bond market pressures

Bank of England (BoE) Governor Andrew Bailey said on Friday that monetary policymakers have some discretion over how quickly they bring inflation back to target, while stressing that returning inflation to the target remains imperative.

Bailey also addressed central bank communication, saying that Federal Reserve (Fed) Chair Kevin Warsh is right to identify some dangers associated with forward guidance. The BoE Governor argued that central bankers should avoid providing unconditional guidance on the future path of monetary policy.

His comments highlight the importance of central banks preserving flexibility in response to changing economic and inflation conditions, rather than committing in advance to a predetermined monetary policy path.

On the fiscal front, Bailey also stressed that high debt levels reflect the very substantial challenges facing governments. He added that elevated debt is also contributing to pressure in bond markets.

Market reaction

The British Pound (GBP) showed little reaction to Bailey’s comments. GBP/USD trades around 1.3525 at the time of writing on Friday, virtually unchanged on the day.