WASHINGTON, March 21 (Reuters) - Central bankers should tell markets what economic factors would induce them to raise interest rates, rather than when rates might rise, the Bank of England’s chief economist, Spencer Dale, said Friday.
“Central banks should communicate what we know most about,” Dale told a conference of economists at the Federal Reserve. “I know I don’t know what will happen to interest rates in the next 6-12 months.”
What central banks can say is what factors they will use to judge the economy’s readiness for higher rates, he said. Such so-called forward guidance for rates is known to economists as “state-contingent.”
“We should communicate state-contingent guidance, because that’s what we know far more about than time-contingent guidance,” Dale said.
He was speaking in the very same room where Federal Reserve Chair Janet Yellen on Wednesday suggested that U.S. interest rates could rise in early spring 2015, “around six months” after the expected end of the Fed’s bond-buying program in the coming fall.
Her comments, a departure from the rest of her remarks which sought to give the kind of state-contingent guidance that Dale advocated, sent bond and stock markets tumbling.
Reporting by Ann Saphir; Editing by Leslie Adler