The Founder of Macrodesiac, David Belle, has today dropped a BOMBSHELL, saying Andrew Bailey, the Governor of the Bank of England, should be replaced by AI.

Speaking to Macrodesiac, Belle says, 'after hearing that Bailey has veered away from using the Bank's model to forecast inflation, and is repeating the same mistakes which led to Andy Haldane apologising for the Bank's Brexit forecasting, one must ask why we cannot replace Bailey with a simple single line of code, since that is pretty much all his output consists of currently.'

This comes after Bailey spoke to the FT last week, saying:

The reason we are not following ‘the model’ is because there are asymmetric effects [in the BoE’s view of the path of inflation] . . . We have taken a conscious decision to aim off [the model’s predictions].

The FT article goes on:

Officials say they now believe wages and prices will continue to rise faster for longer than the model’s central forecasts. While the BoE’s central forecast is for inflation to fall well below 2 per cent in 2025, the MPC thinks there is a 50:50 chance it will not drop below the target.
Bailey refused to discuss whether interest rates, which the BoE raised to 4.5 per cent this month, would rise further. “I can’t tell you that we’re near to the peak or at the peak, but we’re nearer to the peak,” he said.

In reference to the last quote from Bailey, Belle says:

'Is he smoking the purest form of crack cocaine that has ever been smoked? Should we simply replace this dullard with ChatGPT?'

The confusing statements coming out of the BoE last week follows as the UK inflation rate was seen at 8.7% YoY on a headline basis, down from 10.1% the month prior but still well above the Bank's target range of 2% +/-1%.

It is unlikely the recent statements coming out of Bailey's gob will go down well with the public after Huw Pill's comments on people just having to put up with being poor caused uproar.

No, but seriously...

What is the point of the BoE?

The tail (The Fed) tends to wag the dog in terms of interest rate path (but not necessarily parts of the market to do with liquidity, see LDI problems occurring before the Silicon Valley bank issues).

In such an interconnected and financialised society, inflation in one economy will rear its head in another, as long as the measures of inflation remain consistent - now I'm going to leave that topic since I have a lot to write about measurements being different leading to different narratives, but just hold the thought.

In effect then, what central banks are likely trying to do is close the yield spread gap, much like the ECB does with Bund/BTP spread closure.

Naturally, in an inflationary world, an FX depreciation would worsen the inflation outlook which forces the hand of central banks to rebalance by raising rates while also restricting the demand side by contracting credit creation...

Or at least trying to.

If we are aware of this interest rate path, why should we not simply permit an algorithm to decide the extent of rate rises?

If the Bank of England gets things so wrong, and is in effect quite politicised after allowing the debt monetisation, could an LLM actually improve the situation?

At the end of the day, there are only three outcomes from a monetary policy meeting.

  1. Make the economy more liquid
  2. Make the economy less liquid
  3. Do nothing

For example...

Were the different interest rate forecast rules really that far off from back in 2022?

Sure, 7% seems much, but in the US we are at 5.25%...

What's another 1.25% between friends, ay?

Check out this chat I had with Google Bard (better than ChatGPT since it has real time data and internet search)...

If an LLM can act like a monetary policy committee, simply by recalling the Taylor Rules, why do we need humans?

At the end of the day, they're all looking at the same data, and humans can perhaps be prone to anecdotal biases.

If the Taylor Rule is currently suggesting the fed has overtightened, then could this be an example of anecdotal bias showing?

Are the Fed playing prediction with policy?

Why do we not have more objectivity in the policy making, especially when the Fed said inflation would be transitory initially.

What makes them right now?

I am rather playing Devil's Advocate here, since policy being fixed with a computer algorithm, ironically created by humans, would probably be a disaster too...

But in the Bank of England's case, I truly think we could do better than Andrew Bailey.

If he were gone, I don't think we'd see any difference between what an LLM suggests and what he does...

INSIDER SCOOP: The most important thing about the MPC in recent years is the group think. They are all rich, upper class and basically think out of a text book.' - Ex-BoE worker.

That says everything.