And You Thought Central Bankers were Superheroes
Janet Yellen, Mario Draghi and others have limited powers to stimulate economic growth
European Central Bank, to do “whatever it takes” to save the euro quelled the market turbulence that threatened to tear apart Europe’s monetary union.
Today, though, central banks look more and more like the Engines That Couldn’t. Despite all their tireless persistence, the world economy remains stuck on the tracks, short of its ultimate destination — a real recovery. The value of the often highly unorthodox methods central banks have employed along the route will be hotly contested by economists for years, even decades. What’s beyond question is that the institutions just don’t possess the horsepower to rescue the global economy.
That hasn’t stopped economists
and investors from pressing central banks to do even more. Draghi in early March dropped the ECB’s interest rates to record lows and expanded an unconventional bond-buying programme—called quantitative easing, or QE—aimed at tamping down rates even furt-
LABOUR IN VAIN
her. The Bank of Japan is widely expected to take more measures to boost that slumbering economy. In the US, the December decision by Fed Chair Janet Yellen to raise the benchmark interest rate, after seven years near zero, has been criticised by some analysts as a mistake, and she’s signalled that rates would be raised slowly than previously anticipated.
The pleas for more central bank action seem to make perfect sense. Markets in the US have been in turmoil, and the economy, though stronger than most others in the developed world, is definitely not roaring. Europe and Japan, struggling to grow and combat deflation, are in far worse shape. Under such circumstances, central banks usually ease monetary policy, making money cheaper to stimulate economic growth and prices. In the case of Japan, Marcel Thieliant,Japan economist at research firm Capital Economics, insists that “more easing is surely needed.” —Bloomberg