INSUBCONTINENT EXCLUSIVE:
By Enda CurranCentral banks are resuming their first-responder role as the world economy runs into trouble even if they lack the firepower
they once had at their disposal.
With Australia cutting interest rates on Tuesday for the first time in three years and India likely to
follow on Thursday, monetary policy makers are again seeking to shore up weak growth and inflation.
Federal Reserve Chairman Jerome Powell
signaled an openness to loosening if necessary
Former Treasury Secretary Lawrence Summers wrote on Twitter that the Fed should cut by 50 basis points over coming months, if not more, to
ward off recession risks.
And European Central Bank officials are poised on Thursday to at the very least agree on generous terms for new
Japan led the charge, with the Topix index up more than 1.5 per cent
The upshot is global monetary policy is turning looser just months
after the Fed and many of its counterparts seemed intent on spending 2019 shifting away from the emergency settings of the past decade
An index by the Council on Foreign Relations shows monetary policy now at its easiest since 2014, while JPMorgan Chase Co
ministers and central bankers from the Group of 20 industrial and emerging economies face when they gather this week in the Japanese city of
former White House official now at the Center for Strategic and International Studies
growth forecast citing a slowdown in trade growth to the weakest since the financial crisis.
Worryingly, officials will convene in the
knowledge that they have less ammunition and monetary policy is not as potent as it once was
Since the 2008 financial crisis, analysts at Bank of America calculate central banks cut rates more than 700 times and bought $12 trillion
given it cut by 500 basis points to fight the last downturn.
And it, at least, has hiked -- the ECB and Bank of Japan never got to reverse
their crisis-era reductions and rates are stuck below zero.
Read More: Powell Signals Openness to Cut If Needed Over Trade Tensions (2) ECB
inflation and slowing growth, investors are betting on action, and see two quarter-point cuts in the US by the end of 2019
JPMorgan this week pushed back its prediction for when central banks across Europe will start tightening, and ABN Amro sees QE being
restarted in the euro region next year.
On Monday, St
with two of five panel members voting for a cut last month
trade war with China and threats to expand it to include allies such as Mexico and the European Union
Morgan Stanley is warning that an escalation of the conflict between Beijing or Washington alone could tip the world into recession within
nine months.
The trade war is not the only drag on demand
Cooling demand in China, tighter financial conditions and a dimming technology boom are also hurting
central banks should have been quicker to normalize policy so they were better positioned to deal with a downturn
But policy makers reject such a strategy, arguing too-fast tightening would risk generating the very economic slump they want to
avoid.
Policy ReviewHowever, another round of loosening will fan the debate over whether they have the right strategy
Fed officials are meeting in Chicago this week to discuss potential changes to how they manage monetary policy, with at least one delegate
advocating a more flexible approach to targeting inflation
long term rather than the short term
The current situation may mean governments have to step up, though they are also constrained
Global debt is at $184 trillion, the equivalent of 225 per cent of GDP, according to the IMF.
The dilemma is perhaps greatest in G-20 host
Bank of Japan Governor Haruhiko Kuroda is again under pressure to act after exports fell for a fifth straight month and a planned sales-tax
