In a speech to the Economic Club of New York, the Bank of England governor suggested he may not move to hike interest rates straight away if unemployment falls quickly.
“It is unlikely that equilibrium interest rates will return to historically normal levels any time soon,” the governor said.
“This prospect [of low interest rates for a long time] puts a premium on macroprudential policies and financial reforms to manage the associated risks without abandoning the need to keep interest rates in line with the equilibrium level,” he said.
In the summer the governor indicated the importance of keeping interest rates on hold until unemployment falls to 7%. The unemployment rate fell unexpectedly to a three-year low of 7.6% between July and September.
Meamwhile, Carney’s concerns about the housing market come as the Council of Mortgage Lenders pointed to “strong upwards momentum” and the Royal Institution of Chartered Surveyors (RICS) said it expects prices to surge next year.
The Bank has already scrapped its Funding for Lending scheme for mortgages, in order to cool the housing markets, a move Carney said “helps ensure that monetary policy can remain as stimulative as necessary for as long as necessary to achieve its objectives”.
“There is a history of things shifting in the UK and the housing market of moving from stall speed to warp speed and underwriting standards slipping. So we want to avoid that,” Carney said.
