Back in the 1920s, Ben Strong, the first president of the Federal Reserve, and Bank of England governor Montagu Norman were close friends and would holiday together. Perhaps they were too close. The economist John Maynard Keynes described Norman as ‘always absolutely charming and always absolutely wrong’. Some blame the two for causing 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 the current setting of UK rates, we do seem to be playing ‘follow the Fed’.
For a while, there was some logic to this. The pandemic was a unique event in modern times that caused a material fall in demand around the world. Central banks globally responded by cutting interest rates.