The Bank of England should stop following the Fed

In the 1920s, Ben Strong, the first chairman of the Federal Reserve, and the governor of the Bank of England, Montagu Norman, were close friends and vacationed together. Maybe they were too close. Economist John Maynard Keynes described Norman as “always absolutely charming and always absolutely wrong.” Some blame both for the global depression that followed the Wall Street Crash of 1929.

Perhaps this should serve as a warning to current central bankers, some of whom could be accused of groupthink. Certainly, when it comes to current rate setting in the UK, we seem to be playing ‘follow the Fed’.

For a while, this had some logic. The pandemic was a unique event in modern times that caused a significant drop in demand worldwide. Central banks around the world responded by cutting interest rates.