The Bank for International Settlements (BIS) warned in its annual report that the era of "near-zero" interest rates needs to end, and singled out the British central bank for comment.
Highlighting the fact that inflation in the UK has been above the 2pc target since December 2009, it said: "One wonders how long [the MPC's] current policy can be sustained."
Mr Posen, who has voted not only for rates to be left on hold but for the Bank to inject another £50bn of quantitative easing into the economy since October, said stagflation – low growth and high inflation – is unlikely in the UK and argued that BIS had made the wrong historical comparison by drawing parallels with the 1970s, when central banks left rates low for too long, unleashing dangerously high inflation.
In a speech at Aberdeen University titled Why Stagflation Is Unlikely, he said: "The underlying dynamic today is parallel to the 1930s."
Mr Posen has previously warned the global economy faces the same headwinds as in the Great Depression, when he claimed misplaced policy was so severe it led to social unrest that resulted in the Second World War.
SOURCE: telegraph.co.uk
He used the stage to unpick the BIS analysis. The 1970s saw "unanchored inflation expectations", "wage price spirals", an energy shock and "an unrecognised decline in trend productivity growth", he noted. "Only oil seems to possibly be at work [this time]," he said. "All of them have to interact to reproduce the 1970s.
"BIS said all central banks should raise rates, and pointed to the UK's above-target past inflation – nonsense," Mr Posen said. "In the UK and the West more broadly, there is little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations, and oil prices are not yet a one-way bet."
Taking a non-consensus view, BIS made the strongest case yet for early and rapid rate rises. "Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks," it said. "Central banks may have to be prepared to raise rates at a faster pace than in previous tightening episodes."
It warned that high inflation is not a one-off, as the Bank has argued for the past two years, as "second-round effects" of soaring food and commodity prices have yet to feed into the system. Wages will have to rise in emerging markets as the prices of staples has soared, which will then feed back into higher goods prices for consumers in the developed world.
Mr Posen said: "Workers have limited bargaining power over wages." He also dismissed suggestions that the UK has less slack in the economy to absorb rising demand than thought, which would put upward pressure on prices.
"[There is] little risk of inflation let alone stagflation," he said. "But we still risk echoing that 30's show writ small.""BIS said all central banks should raise rates, and pointed to the UK's above-target past inflation – nonsense," Mr Posen said. "In the UK and the West more broadly, there is little or no credit growth, little wage growth beyond productivity, little evidence of rising inflation expectations, and oil prices are not yet a one-way bet."
Taking a non-consensus view, BIS made the strongest case yet for early and rapid rate rises. "Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks," it said. "Central banks may have to be prepared to raise rates at a faster pace than in previous tightening episodes."
It warned that high inflation is not a one-off, as the Bank has argued for the past two years, as "second-round effects" of soaring food and commodity prices have yet to feed into the system. Wages will have to rise in emerging markets as the prices of staples has soared, which will then feed back into higher goods prices for consumers in the developed world.
Mr Posen said: "Workers have limited bargaining power over wages." He also dismissed suggestions that the UK has less slack in the economy to absorb rising demand than thought, which would put upward pressure on prices.
SOURCE: telegraph.co.uk
