RAL bankers should shock markets more with monetary policy decisions, M&G fund manager Jim Leaviss argued in a note yesterday.
Central banks sometimes announce their policy too far in advance, Leaviss said, meaning they may be forced to commit to their policy even if economic circumstances change, or potentially leading to a loss of credibility.
“What are central bankers left with, without the ability to surprise and shock?” Leaviss asked. “Perhaps central bankers should realise that keeping us guessing is [among] their most powerful tools.”
But prominent economist Scott Sumner said that the argument central banks could achieve better results with surprise policy relied on assuming that central bank bureaucrats could “outsmart the markets” and therefore seemed to be ignoring the insights of rational expectations. However he said he agreed with Leaviss that unlimited promises of loose policy were misguided – and instead suggested that policymakers should make low rates conditional on economic conditions.