Greene Remains Hawkish, Warns Wage Disinflation Has Stalled

• Megan Greene believes the central bank should persist in its proactive stance to mitigate the risk of second-round inflation effects.
• She also sees the likelihood of second-round effects as higher than earlier assessments.
• Wage deceleration appears to have plateaued at rates that exceed what is compatible with the 2% inflation target.

Megan Greene remains unwavering in her position, and her statements are growing more emphatic. She now argues that wage disinflation has halted at rates that are not aligned with the 2% inflation objective, the threat of second-round effects is elevated compared with earlier assumptions, and the BOE must persist in actively countering those effects.

That marks a complete set of hawkish positions, all of which are familiar from her earlier remarks. She was among the three September committee members who dissented by voting for a rate increase to 4%, cautioned last week that delaying action until second-round effects materialize means intervening too late, and on October 8 pointed to 3.5% wage settlements as a concern. Market pricing for the November gathering already stands at 96.7% probability of a 25-basis-point hike, so Greene’s views alone are no longer shifting expectations, yet the implication could be that 4.00% will prove insufficient, as will the 5.00% level factored in for late 2027.

A notable development in recent days is the broad hawkish shift that emerged from the IMF meetings. Officials who previously were comfortable allowing disinflation to proceed at its own pace now sound far less accommodating after the discussions in Thailand. Themes such as supply disruptions, persistent services inflation, and wage-setting dynamics that resist normalization are recurring in addresses from various central bankers. Greene’s perspective — that the asymmetry of risk favours early action since policy can later be reversed — appears to be gaining traction among policymakers.

For the pound, this does not represent a new driving force. The November rate increase is already discounted and Greene’s stance is well understood, yet cable is trading firmly on the day, advancing 71 pips to 1.3373. A concern is that the Federal Reserve has not undergone a similarly gradual hawkish turn following its own meeting, and that could emerge as an unexpected factor on October 28.