Chart 3b uses slightly different measures for the same things – the average policy vote on the MPC and a survey measure of growth6 – but the conclusion is the same. Policy is tightened when growth is strong and loosened when it’s weak. It’s no surprise to find that the government balance is similarly cyclical (3c) – or, therefore, that it’s also well correlated with the behaviour of monetary policy. Furthermore, the responsiveness of policy rates to economic growth seems to be necessary to stabilise inflation. Certainly inflation has been very stable under inflation targeting (more stable, in fact, than in any 25-year period in the 800-year history of the estimated UK series). And you have to go back all the way to 6 A weighted average of the composite PMI and (to cover the distribution sector) the headline balance from the CBI distributive trades survey. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  the pre-WWI classical gold standard, the last time the UK had something akin to a “target” for domestic prices7, to find a period when short-term interest rates were reasonably well correlated with economic growth – or in which inflation was well controlled (Chart 4). Chart 3a: Monetary policy and economic activity correlated under inflation targeting  Chart 3b: Also apparent using MPC votes and survey measure of growth  Sources: De Rezende and Ristiniemi (2020), ONS and Bank calculations. 6-month averages, combined IHS Markit/CIPS and CBI distributive trades lagged one month.
John C Williams: Reading the recovery Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Council on Foreign Relations, 14 January 2022. * * * As prepared for delivery Good morning, everyone, and Happy New Year. Thank you, Charles, for that introduction. And thanks to Richard Haass for the opportunity to speak with the members of the Council on Foreign Relations once again. For the past two years, I’ve begun my remarks by saying how much I wish we could meet together in person. This time, I really was hoping for a chance to rewrite the script. After seeing so much progress on vaccinations over the past year and a moderation in COVID-19 infections during the fall, just a short time ago many of us had expected that we’d soon be turning the page. The story of the pandemic is a complicated one. It is writing itself as we live it, and the storyline has been far from predictable. This is, first and foremost, a health crisis. The unusual and extraordinary nature of the situation means that circumstances are constantly evolving. For the economy, this has meant that what we’ve experienced is unlike any recession or recovery we’ve seen—or read about—in the past. While there have been significant improvements in the overall economy, setbacks persist in some areas, and new challenges have appeared.