Central Banks Want New Powers, But at What Cost?
Linking monetary policies with governments’ fiscal policies is likely to have negative consequences.
The future of money is is uncertain.
Photographer: Bloomberg
Central bankers deserve credit for saving the economy from the financial crisis. They won the battle, but not the war. So now they are asking for new powers to fix the side effects of a decade of ultra-low low and even negative interest rates. The price may be a Faustian bargain with governments.
The Federal Reserve had room in 2007 to cut its target rate by 500 basis points, or 5 percentage points, just as it did in the early 2000s when the U.S. economy fell into recession. But with the federal funds rate now in a range of 1.50% to 1.75%, the Fed has limited ammunition. This is why the Fed announced in November 2018 a review of its policy strategies. The ECB has its own review coming up in the first half of 2020.