Since the beginning of May, monetary policy has undergone a substantial tightening. This has taken the form of a rise in the yield on the bonds of highly rated governments. The yield on 10-year US Treasuries rose by 88 basis points between May 2 and the end of last week, to 2.51 per cent. This is a clear tightening of monetary conditions: a rise in these yields lead to rising borrowing costs for the private sector. It is, however, not clear that it is deliberate: longer-term bond yields are not an explicit target for monetary policy. Moreover, part of the reason for the jump in rates is rising confidence. But talk of “tapering” US quantitative easing is also a factor. It is hard to manage a policy whose effects depend on expectations. But it must be done better: this tightening is premature.

That is surely not how it would appear to the Bank for International Settlements, whose annual report calls for an early end to loose policies: “Authorities need to hasten structural reforms so that economic resources can more easily be used in the most productive manner. Households and firms have to complete the repair of their balance sheets. Governments must redouble their efforts to ensure the sustainability of their finances. And regulators have to adapt the rules to an increasingly interconnected and complex financial system and ensure that banks set aside sufficient capital to match the associated risks.”

This is central bank bromide. Worse, it is hard to understand how the BIS thinks its recommendations add up across the world economy. In essence, it suggests that the private sectors should run bigger financial surpluses, as heavily-indebted agents repay debt, while governments should run smaller deficits. Unless one assumes that advanced countries will run vast current account surpluses with the rest of the world, this is a plan for a depression. The BIS does not even consider the possibility that monetary policy has been ineffective because it is competing with the fiscal tightening the BIS has recommended.