At some point – and no-one could know at all precisely at what point – demand in the US would begin to outstrip supply and the growing external imbalance between the US and the rest of the world would become unsustainable; relative asset prices – including the dollar’s exchange rate – would over-discount prospective US corporate earnings growth and both equity and foreign exchange markets would then become vulnerable to abrupt correction. Against that background it has been clear for some time that there needed to be a slowdown in the growth of the US economy to a rate which was more sustainable, both in the US itself but also in terms of the imbalance within the global economy – and the debate turned to whether it would come  BIS Review 1/2001  1  as the “soft landing” we would all welcome or a more disruptive “hard landing” which we could all well do without. And slowdown, of course, is what we have seen over the past six months. In the third quarter US GDP growth fell to an annualised rate of some 2¼% - less than half that in the earlier part of last year, and much of the more recent data suggest a further weakening.
I would not venture to suggest how these – and all the other developments we look at – will influence our next forecast in February; and it would be pointless to anticipate possible future policy decisions. I would be surprised if they radically altered the broad prospect of relatively steady progress over the next two years. But I can assure you of one thing: if the prospect – or the balance of risks around it were to change significantly – either in the context of our February forecast or subsequently – we will promptly react to that change. Despite the fact that we left interest rates on hold again last week, we have certainly not gone to sleep! We cannot guarantee that we will always remain as close to the symmetrical inflation target as we have been in recent years – the uncertainties as I have explained are too great for that degree of confidence. But that remains our aim. And I will be happy to report back to you again at your next dinner. Let me, Mr President, just conclude by congratulating you and the Chartered Institute on your achievements – not just over the past two years though I do congratulate you on that, especially, if I may, on your introduction of your new Chartered Banker qualification. But I congratulate you more broadly on your achievements over the whole 125 years since your foundation.