Chicken And The Egg

[dude wheres my house]

"Since the May Report, the Monetary Policy Committee has

raised Bank Rate by 25 basis points to 53/$%. Short-term

sterling interest rates suggest that market participants expect

Bank Rate to peak at close to 6% by early 2008 and then drop

back; the projections described below are conditioned on that

assumption. Sterling appreciated against all the major

currencies, but particularly against the dollar. The growth of

bank credit and broad money remained rapid."

http://www.bankofengland.co.uk/publication...rt/ir07augo.pdf

So they are basing their assumptions on what the market expects them to do? Why dont they decide what they are going to do based on the data they have at hand!!!!

[OzzMosiz]

I wonder if talk of the Fed cutting to bail out the housing market has led to this softening in the BoEs expectations?

[Guest tbatst2000]

http://www.bankofengland.co.uk/publication...rt/ir07augo.pdf

So they are basing their assumptions on what the market expects them to do? Why dont they decide what they are going to do based on the data they have at hand!!!!

Unfortunately, one of the pieces of data they have at hand _is_ what does the market expect us to do? Setting interest rates is a bit like trying to adjust the height of the middle of a washing line by waggling one end of it. What the market expects the bank to do sets the long term interest rates in a number of ways, specifically in the fixed rate loan (including mortgage) market. If the market expects rates to average 6% for the next two years then people will be able to get fixed rate mortgages at 6% + profit margin regardless of what the interest rate today happens to be.