There are many uses of the phrase “new normal” in economics these days. Usually, it is used to signify lower growth or a different type of growth than in the pre-crisis period. Mark Carney went onto the radio this morning to talk about the “new normal” in monetary policy.
Interest rates would be materially lower in future than the 5 per cent rate widely seen as normal before the crisis. The Bank of England governor’s words have been widely reported as a big new statement of policy.
Is this a new policy?
No. Carney first talked about future interest rates being “well below historical norms” in his January speech at the World Economic Forum in Davos, which confirmed the BoE had ditched its original forward guidance linking interest rates solely to unemployment. The important passage was reported clearly in the FT at the time and is copied below.
In February this year, David Miles, an external MPC member, devoted a whole speech to “the transition to a new normal for monetary policy”, in which he said that higher margins on mortgage lending, among other things, meant “the equilibrium policy rate [will be] as much as 2 per cent, and conceivably a little more, below what we used to think of as normal”.
Did Carney make a commitment on the radio?