Given our forecast of stable prices and a still slow path back to full employment, there is an argument for easing further. But, unfortunately, our tools have costs associated with them as well as benefits. Thus, we must weigh these costs against the benefits of further action. As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs. But if the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing. Under such circumstances, further balance sheet action might be called for. We could choose between further extension of the duration of the Federal Reserve’s existing Treasury portfolio and another large-scale asset purchase program of Treasuries or agency mortgage-backed securities. Conversely, I would be willing to consider tightening policy at a somewhat earlier stage if growth strengthened sufficiently to materially improve the medium-term outlook and substantially reduce tail risks, or if there was evidence of a genuine threat to medium-term inflation, including a rise in inflation expectations. In such a case, I would anticipate that the first step would be to bring in the late 2014 date of the policy guidance.
The FPC has published its assessment of Brexit risks and it’s ‘Checklist’ of actions necessary on both sides of the Channel regularly since 2017. The FPC also published, in response to a request from Parliament, its severely adverse Brexit stress scenarios. This approach has not been without some criticism – in the UK and in the EU. I would argue however that not only is it our statutory duty to report on risks to financial stability but that by making our assessments public we have encouraged others to prepare for the risks.3  And by making transparent not just our assessment of the resilience of the financial system but the assumptions and judgments that underpin them, we reduce risk by ensuring people can have confidence in the system even if it comes under severe stress. Looking further forward, there are two Brexit related financial stability risks that may surface after we have left the EU. The first are the risks that may arise from our future relationship with the EU. The choice of that relationship is for government and parliament and not for central bankers. It will need to balance very different economic and social objectives on which views are, as we have seen in recent months, very divided. Financial stability, which is my responsibility in the Bank, is I think an important consideration in that equation, but it is only one consideration.