In addition to his role as Governor of the Bank of England, Mark Carney also chairs the Financial Stability Board (FSB), a global watchdog body. He recently delivered a warning that complacency within the investment community is a threat to the stability of financial markets, still not fully recovered from the Global Financial Crisis (if they were, economic recovery and employment opportunities would be significantly better).
Speaking at an insurance industry conference in Wales, Mr Carney warned that investors were pushing up asset prices and taking excessive risks in a bid to get good returns on their investments. He cautioned that such asset price inflation came with the risk of a “sharp reversal” in their values, "we are alert to the possibility that financial markets may be mispricing risks", he noted. He cited an FSB declaration from a recent meeting in Australia which cautioned: "there are increased signs of complacency in financial markets, in part reflecting the search for yield amidst exceptionally accommodative monetary policies". The accommodative measures adopted by many central banks seek to reduce interest rates on long-term bonds, keeping borrowing costs to states low via mechanisms such as quantitative easing. Some of this policy has resulted in funds migrating to foreign markets where yields (and risk) may be higher. The FSB notes that: “authorities are stepping up their monitoring of the migration of risks to less regulated parts of the financial system.”
Mr Carney also told the audience that the time when UK interest rates would rise was “getting closer”, but stressed his opinion that "the precise timing of the first rate rise is less important than our expectation that when rates do rise, those increases are likely to be gradual and limited". Pundits are divided on whether the rates will edged up in Q4 of this year or stay on hold until Q1 2015. The UK’s key interest rate has been held at 0.5% since March 2009.