And You Thought Cen­tral Bankers were Su­per­heroes

Janet Yellen, Mario Draghi and oth­ers have lim­ited pow­ers to stim­u­late eco­nomic growth

The Economic Times - - Commodities Plus -

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

SLOW­ING ECON­OMY

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

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