JACKSON HOLE, WYOMING: Global central bank chiefs know their job is to keep the economy out of the ditch. What became clear at the US Federal Reserve’s central banking conference in Jackson Hole, Wyoming, over the past couple of days is that not only do other people hold the wheel, some seem intent on steering toward trouble.
“We are experiencing a series of major political shocks; we saw another example of that yesterday,” Reserve Bank of Australia Gov. Philip Lowe said on Saturday, a day after China and the US slapped more tariffs on each other’s goods and US President Donald Trump called on American companies to shut down their operations in the Asian nation.
As those political shocks slow growth, Lowe said in a panel discussion, “there is a strongly held view that the central bank should just fix the problem ... The reality is much more complicated,” and not something monetary policy can likely repair.
His comments spoke to an uncomfortable truth that hovered over an annual symposium where the mountain backdrop and two days of technical debate often seem distant from the world of realpolitik. Even as central bankers and economists referred to the deep connections that now tie the world’s economies together, a US-driven trade war seemed to be driving them apart and raising the specter of a broad global downturn.
Worse, it’s a downturn none of the central bankers seemed confident about how to fight — coming not from a business- or financial-cycle meltdown that they have a playbook to combat, but from political choices that threaten to crater business confidence.
If that’s the problem, Lowe and others said, lower interest rates — something demanded by Trump to get an upper hand in the trade war with China — will do little to help.
“The problem is in the president of the United States,” former Fed Vice Chair Stanley Fischer said at a lunch event on Friday. “How the system is going to get around some of the sorts of things that have been done lately, including trying to destroy the global trading system, is very unclear. I have no idea how to deal with this.”
It was a rare calling out of Trump, though his presence infused other remarks. Fed Chair Jerome Powell, handpicked by Trump to run the central bank but now an object of the president’s ire, noted in his opening speech that the Fed had no chartbook for building a new global trading system.
Central banks have asked politicians for years to use fiscal policy more constructively and address structural problems plaguing economies.
What they’ve gotten instead is a fast multiplying set of risks, with the US-China trade war at the epicenter but also including the possibility of a disruptive British exit from the EU, an economic slowdown in Germany, a political collapse in Italy, rising political tensions in Hong Kong, and longstanding international institutions and agreements under pressure.
European Council President Donald Tusk described this weekend’s G7 leaders summit in Biarritz as a “last moment” for its members — the US, Britain, Germany, Japan, France, Italy and Canada — to restore unity.
Amidst all the tumult, and with interest rates across the globe already lower than they’ve been historically, monetary policy may be no match.
“There is not that much policy space and there are material risks at the moment that we all are trying to manage,” Bank of England Gov. Mark Carney said on Friday.