Do Central Banks Have an Endgame?
|The logic of very low interest rates is severely self-limiting. If base rates below 1 percent created economic growth then there would be no need for monetary policy. That they do not and cannot is now plainly evident. The justification that they prevented economic catastrophe, even if true, is no argument for their prolongation for nearly a decade in the United States and half that in Europe.
This monetary experiment is ending because, as in Herbert Stein’s famous phrase, "If something cannot go on forever, it will stop”. Recession is the next problem and the ECB, the Fed and the rest of the world’s monetary authorities are in no position to offer their historical counter-cyclical remedies. Global economic growth is weak and ebbing.
The three main proponents of zero rates, the Federal Reserve, the ECB and the Bank of Japan have pointedly declined to augment their programs. If zero rates and quantitative easing worked why stop now? What will the central banks do when the next recession hits? Are there other untried policy tools?
Join us for an examination of the fraught world of modern central bank policy.
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