Monetary chiefs say it’s too early to stop virus spending

THE WORLD’S top central banks are urging governments to put concerns about mounting debt aside for now and keep spending until the economic recovery from the coronavirus is complete.

Their calls are being met with pushback in some countries, where the question of how to pay for rescue efforts is creeping up the agenda. But the International

Monetary Fund (IMF), historically a champion of budget restraint, says they have a point.

The Fund is due later Wednesday to publish its most detailed study of the pandemic’s impact on public finances. Chief Economist Gita Gopinath warned Tuesday of a “long, uneven and uncertain ascent” ahead after the worst slump in generations, with poverty rising and unemployment still high — and said it’s too early for policy makers to withdraw support.

That case was made with growing urgency by central bankers heading into this week’s IMF annual meeting. European Central Bank chief Christine Lagarde kicked off the online-only event by saying her biggest concern is that fiscal aid to workers and businesses may get phased out too abruptly.

A parade of Federal Reserve officials led by Chair Jerome Powell lined up last week to make the same argument with regard to the US, where talks on the next dose of pandemic stimulus have been deadlocked for months in Congress. Fed officials said their

own tools, such as another round of bond buying, won’t be as effective as government spending.

The message from the most powerful central banks is increasingly clear: there are limits to what monetary policy can do to help in the short run. Fiscal authorities — who can borrow at rock-bottom interest rates, and possess tools better-suited to deliver a rapid and targeted boost — will have to finish the job.

Mr. Powell and Ms. Lagarde are pushing back against the “myth of the omnipotent central bank” capable of fixing any problem in the economy, said Paul Donovan, global chief economist at UBS Wealth Management in London. “They can’t always solve it,” he said. “This is not a credit crunch. Cutting the cost of credit isn’t going to stimulate the economy.”

The backdrop is a global rebound that’s losing momentum — and a risk that politicians who already injected some $ 12 trillion of stimulus, according to IMF estimates, will balk at spending more as debt levels hit records. —