Central bankers aren’t getting along

{"text":[[{"start":5.85,"text":"Central bankers, Goldman calculates, have never (recently) been such rebels:"}],[{"start":null,"text":""}],[{"start":12.09,"text":"Analyst Sarah Dong writes:"}],[{"start":null,"text":"

While dissent frequencies vary by country, they have recently become a more notable feature of central bank meetings.

"}],[{"start":16.79,"text":"We’ve written a lot before about patterns of dissenting votes (those cast against the winning vote by a rate-setting committee) in a Bank of England context. It’s a rich vein, not least because the BoE has had at least one Monetary Policy Committee member dissent at every meeting since 2022, making it the least unified across all major central banks amid the post-pandemic inflation adventure."}],[{"start":null,"text":""}],[{"start":43.43,"text":"Of course, any veteran BoE watcher will know that the consistency of dissent on the MPC hasn’t always been indicative of a meaningful split — not least because the vast, vast majority of rebellions have emerged from the often-outmuscled external members. "}],[{"start":60.72,"text":"Take Swati Dhingra, who has dissented dovishly in three-quarters of her votes since joining the MPC in September 2022 — giving her by our calculations the worst vote win ratio of any member in history. Even though the trajectory of Bank Rate has been downwards during her tenure, it’s hard to argue that’s been because she’s pulled the committee with her."}],[{"start":86.11,"text":"We think a similar level of nitpicking could apply to most central banks. So can we learn anything in the broad from such dissents? Possibly, according to Goldman’s research, although we’re disappointed to report that the effects seem distinctly mild."}],[{"start":102.49,"text":"First finding is that some economic trends divide central bankers more than others:"}],[{"start":null,"text":"

Using the historical voting records of ten global central banks, we find that dissents are less common when unemployment is undershooting trend but more common following changes in inflation and increases in unemployment over trend, suggesting that central bankers are typically united in heeding the message from a weaker labor market but disagree more often about whether inflation is transitory or persistent. In addition, dissents are persistent meeting-to-meeting but tend to decline following leadership changes.

"}],[{"start":null,"text":""}],[{"start":108.47,"text":"Second is that hawkish rebellions tend presage increases in the policy rate, albeit to a very narrow degree:"}],[{"start":null,"text":"

Our estimates imply that a single hawkish dissenter in a ten-member committee raises expected policy at the following meeting by 4bp. However, this effect falls to around 2bp if dissents had also been observed at the prior meeting, suggesting that the dissent signal for future policy outcomes is weaker if voters have established a pattern of serial dissenting. We find the effects to be similar regardless of if the dissent was made in favor of a hold or a policy change.

"}],[{"start":116.86,"text":"Third is that having a quarter of the committee rebel hawkishly is mildly bad for equities and bonds:"}],[{"start":null,"text":""}],[{"start":126.21,"text":"Dong writes:"}],[{"start":null,"text":"

Looking ahead, we see scope for disagreement at several global central banks as they fine-tune interest rates while inflation is coming down but still generally above target. Our results suggest that these dissents may contain useful info on future policy changes, especially if dissents come from voters with less entrenched views.

"}],[{"start":128.04,"text":"Right. Honestly, we were hoping for something a bit more spicy, and suspect most entrenched central bank watchers would prefer to look at things in a much more granular way. Timing, previous voting history of the member, intervening communications, internal/external status . . . all these things probably matter too, in a way that we reckon renders dissent-watching alone a bit crude."}],[{"start":151.13,"text":"But in an increasingly divided (central banking) world, it’s nice to find an area where Britain is leading the way. Or creating the problem."}],[{"start":168.19,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1771028974_2505.mp3"}