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Beware of central bankers bearing gifts

The only thing worse than an "unreliable boyfriend" is the one who relentlessly aims to please but fails to understand what his partner really needs. Despite his best intentions, he disrupts the relationship through an improper assessment of the situation at hand. Meet the "out-of-touch boyfriend".

The latter label arguably became a more apt characterization of Bank of England Governor Mark Carney on Super Thursday. In the process of trying to shake off the "unreliable" reputation he earned during a parliamentary hearing last year, Carney is leaving the door open to easy monetary policy for longer in the event global headwinds take a turn for the worse.

The governor struck a surprisingly dovish tone last Thursday as the bank pushed out its inflation forecast while trimming the UK growth outlook. But Carney's assertion that risks from developing economies could overshadow domestic resilience caught many off-guard, especially after the U.S. Federal Reserve pared back its focus on external threats. The statement also comes amid a rebound in UK manufacturing activity to a 16- month high, suggesting robust domestic demand is offsetting a slowdown in China.


Bank of England Governor Mark Carney
Dylan Martinez | WPA Pool | Getty Images
Bank of England Governor Mark Carney

Carney's defenders will argue that the Bank of England is hedging bets in case the Fed keeps rates on hold into next year, forcing a de facto tightening courtesy of sterling strength.

But as every out-of-touch boyfriend would be wise to remember: Timing is everything. A day after Carney took the stage, the U.S. nonfarm payrolls report blew past forecasts, sending the dollar index to a six-month high as federal funds futures moved to price in a 70 percent chance of a December rate hike.

"I bet he (Carney) regrets saying what he had to say. The Bank of England looks slightly after-the-fact here," Marcus Ashworth, Head of Fixed Income at Haitong Securities told me.

Arguably, Bank of England policymakers are less concerned with predicting Janet Yellen's next move and are more focused on European Central Bank President Mario Draghi's master plan. Carney and Draghi will meet face to face in London on Wednesday at the Bank of England Open Forum. While the official agenda looks at the role of financial markets in the economy, you can be sure the chat on the side-lines will include central bank divergence. After Draghi all but promised to deliver a Christmas bonus by expanding quantitative easing in December, even a hint of tightening from the BoE next year could be perceived by markets as coal in the stocking.


Still, Carney may soon discover what so many have learned the hard way: keeping up with the best friend's boyfriend only brings short-term gain, frequently followed by long-term pain.

That pain is already being felt in some sectors. Andreas Treichl, the chief executive of Austrian lender Erste Bank told me in a CNBC interview that "Quantitative Easing is neither good for our bank nor good for our clients. We would like it (QE) to be over, but there are other goals to fulfil for Europe." As Mr Treichl points out, where you stand on QE depends on where you sit. But in the spirit of data-dependence, central bankers (and boyfriends) should take heed. Perhaps the best gift of all this Christmas is not what your partner or the fickle markets want, but what they need.