If recovery goes too fast and the Bank of England is forced to raise rates, will the coalition regret fixing the poll for 2015?
I first encountered Mark Carney on a funicular railway in Davos in 2009, during the annual World Economic Forum. We had both been to a Barclays Bank reception and, as I recall, were the only people in the carriage. "Hi," said my companion. "I'm Mark Carney. I'm the governor of the Central Bank of Canada. We haven't had a banking crisis."
The scene shifts to 2013, and the runup – the long runup – to his appointment as governor of the Bank of England. This was made, after a long courtship, by our chancellor, who appeared to be starstruck by the George Clooney of central banking. The establishment's view is that the obvious internal candidate, my friend (now "Sir") Paul Tucker, had been ruled out on account of an unfortunate email exchange between him and Bob Diamond of, wait for it, Barclays Bank. My own view is that George Osborne was determined to employ an outsider, and that Tucker did not really stand a chance, despite being quoted at odds of 7-2 on at the bookmakers. (For non-racing readers, that meant that he was such a hot favourite that you would only win £2 for every £7 staked.)
I also think that Tucker was a victim of email culture, and that if the private exchanges between Bank officials and City figures in pre-electronic days had been subject to such scrutiny, few would have escaped unscathed.
However, Osborne got his man, and your correspondent was one of the more vociferous in criticising the extraordinarily generous financial terms on which he was appointed.
The deal rankled all the more because Osborne, Carney's champion, is the lead player in the economics of austerity – a policy, with regard to the poor and disadvantaged, which he intends to go on applying to the point where even deputy prime minister Nick Clegg is becoming embarrassed.
Now, this column did not get where it is today without trying to be fair-minded and sounding out the opinions of many of the people it meets. And, with regard to Carney, my general impression is that he is finding the job not quite as easy as running the Bank of Canada, and that he has been quite good at rubbing a number of his officials up the wrong way.
It is also apparent that his commitment to "forward guidance" is causing increasing concern among City analysts, not least because the Bank's forecasts of unemployment – the indicator at the centre of "guidance" when it comes to criteria determining changes in interest rates – appear to have been overtaken by events. Nevertheless it is also my impression that Carney is going down well with the public – seeming to win the approval of everyone from finance directors to Steve, who brews my coffee in the Pistachio & Pickle cafe.
The same cannot be said for Osborne. Which brings us to the delicate question on so many people's lips: when are interest rates going to go up?
It is a most interesting situation. Governments throughout most of my career have chosen the timing of an election to suit what they regard as their best interests, and the state of the economy has been a crucial factor.
The economy is at last experiencing a period of rapid growth – needlessly delayed by Osborne – and there are those who think the boom could get out of hand between now and May 2015, and that – who knows? – the Bank might be forced to raise interest rates sharply. But Osborne insisted on a five-year term as part of the coalition agreement, and he and Cameron are unable to cut and run if their electoral chances suddenly look favourable.
Well before his appointment, Carney was on record as believing that reliance on interest rates was not necessarily a first resort, and that other tools to control credit should be used first. And in his lecture to the Economic Club of New York on 9 December, he insisted that "forward guidance" about reluctance to raise interest rates "reduces uncertainty by providing reassurance that monetary policy will not be tightened prematurely before the recovery is sufficiently entrenched to sustain higher rates".
It was obvious from his New York lecture that Carney thought the recovery still had a long way to go: "Despite very low interest rates, resources are not fully employed. 850,000 more people are out of work than in the years before the crisis and GDP is around 20% below an extrapolation of its pre-crisis trend."
The markets have become excited by the more recent improvement in the employment position; but unemployment is still far too high.
I was impressed by Carney's New York lecture, not least by his sceptical attitude to those who think we are in for a period of "secular stagnation". My own belief is that theories of secular stagnation are revived on a cycle of their own, the last one being during the oil crisis in the 1970s. As Carney says, the US economy is more than 13 times larger than when the economist Alvin Hansen worried about stagnation.
As for the shorter term, readers might care to dwell on Carney's observation, again in New York: "Despite admirable progress by British households in recent years, aggregate debt levels remain high at 140% of incomes. In addition, housing activity is picking up and price growth appears to be gaining momentum. Moreover, the UK current account deficit is near record levels."
So when will interest rates go up? Search me, guv.