Bloomberg News

BOE’s Posen Says ‘Premature Policy Tightening’ Is Biggest Risk

October 26, 2011

Oct. 26 (Bloomberg) -- Bank of England policy maker Adam Posen said one of the biggest risks to growth is that policy makers withdraw stimulus too soon.

“Premature policy tightening” and “insufficient stimulus” threaten to impair economic growth, Posen said during a panel discussion at the Buttonwood Conference in New York today. European nations formulating austerity measures are competing to be the “least ugly,” he said. “The U.S. is not playing that game, which is why it’s starting to recover.”

The Bank of England’s Monetary Policy Committee expanded its bond-buying program by 75 billion pounds ($120 billion) to 275 billion pounds this month, its first expansion of stimulus since 2009. The move marked a victory for Posen, who had been the sole member of the MPC voting for such a move for a year.

Announcing its decision to expand so-called quantitative easing on Oct. 6, the central bank noted “severe strains” in bank funding markets and risks related to the euro-area debt crisis. Governor Mervyn King said the move was a response to what may be the worst financial crisis ever.

U.K. policy makers including Posen and Deputy Governor Charles Bean have signaled they might add to the emergency stimulus plan if needed.

Posen said the European Central Bank also needs to pursue policies of “activism” that fuel growth to help stem Europe’s sovereign debt crisis.

“The missing key is the ECB not stepping up,” Posen said Failure to do so will damage the ECB’s credibility, he said.

“If anything your credibility is going to be eroded” because “you have your own agenda that isn’t a growth agenda” and “isn’t a stability agenda,” Posen said.

--Editors: James Tyson, Kevin Costelloe

To contact the reporter on this story: Caroline Salas Gage in New York at

To contact the editors responsible for this story: Chris Wellisz at; Craig Stirling at

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