The Switzerland-based BIS, which promotes cooperation among the world’s monetary officials, used its annual economic report to urge politicians to “ignite all engines” to overcome a global soft patch. They should make structural reforms and strengthen fiscal and macroprudential measures, instead of relying on ever-lower interest rates in a debt-fueled growth model that risks turbulence ahead.
“The continuation of easy monetary conditions can support the economy, but make normalization more difficult, in particular through the impact on debt and the financial system,” the BIS said. “The narrow normalization path has become narrower.”
U.S.-led protectionism has dented economic confidence and slowed growth, forcing central banks to prepare to ease policy again even if they haven’t yet returned to their pre-crisis settings. The Federal Reserve and the European Central Bank are expected to cut interest rates this year, while nations including Australia, Russia, India and Chile have already started.
Economists at Citigroup Inc. estimate that while fiscal policy in the major industrial countries will be expansionary this year it will be less so in 2020 as past measures in the U.S. wear off.
There is a confluence of factors that are leading to support for Modern Monetary Theory. On the one hand we have central banks stating that the fuel from monetary accommodation is not as effective any longer. They are telling governments to engage in fiscal stimulus and decluttering of the regulatory environment to boost growth. Governments for their part are saying to central banks that they will pursue massive deficit spending if interest rates don’t shoot up immediately afterwards.Click HERE to subscribe to Fuller Treacy Money Back to top