Carney's forward guidance could endanger the economy, warn economists

Providing forward guidance is damaging the global financial system, according to economists.

All four of the leading central banks provide forward guidance, which lets us know what will happen to interest rates in the future, in the hope of reducing uncertainty.

However, economists from the Bank for International Settlements – known as the central bankers’ bank – have warned investors are taking on too much risk because they think they will be told well in advance if interest rates are increased.

It also said banks could leave interest rates too low for too long because they don’t want to disrupt markets by raising them, according to the FT.

Bank of England governor Mark Carney pledged to keep interest rates at 0.5% until unemployment fell to 7%. However, he faced criticism after the most recent unemployment figures nearly matched that target - far sooner than expected.


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