{"id":19016,"date":"2021-08-27T13:44:28","date_gmt":"2021-08-27T12:44:28","guid":{"rendered":"https:\/\/ounews.co\/?p=19016"},"modified":"2021-08-27T13:44:28","modified_gmt":"2021-08-27T12:44:28","slug":"jackson-hole-the-worlds-central-bankers-have-plenty-to-discuss-after-such-an-expensive-pandemic","status":"publish","type":"post","link":"https:\/\/www.open.ac.uk\/blogs\/news\/science-mct\/maths-statistics\/jackson-hole-the-worlds-central-bankers-have-plenty-to-discuss-after-such-an-expensive-pandemic\/","title":{"rendered":"Jackson Hole: the world\u2019s central bankers have plenty to discuss after such an expensive\u00a0pandemic"},"content":{"rendered":"

Alan Shipman<\/a>, Senior Lecturer in Economics at The Open University<\/a>, writes for The Conversation<\/a> about the upcoming of the annual meeting of the world’s central banks, which will be held online this year.<\/p>\n

The world\u2019s central bankers won\u2019t be riding into town to save the world this year. Their annual gathering<\/a> in the US, at Jackson Hole, Wyoming, is taking place online due to COVID-19. But with major economies starting to revive, the pandemic\u2019s impact on the global economy may not even be the biggest of their concerns.<\/p>\n

Instead, they are likely to be taking on resurgent inflation, asset and property bubbles, the unfinished repair job from the global financial crisis<\/a> of 2007-09, and the urgent action needed to halt climate change<\/a>. This expansive remit underlines how central banks have outgrown their traditionally narrow mission, making public figures of the technocrats who run them.<\/p>\n

The most prominent \u2013 the Bank of England (founded 1694), the US Federal Reserve (1913) and the European Central Bank (1998) \u2013 were set up to watch over the workings of commercial banks and government debt markets. And to use their hold over interest rates to keep inflation close to a target level (typically 2% for higher-income economies). Their power has grown with each financial crisis, an increasingly regular occurrence<\/a> as the world economy becomes ever more interconnected.<\/p>\n

Fiscal attraction<\/h2>\n

In the 1980s and 1990s, when policymakers believed that controlling the money supply was the key to lower inflation and faster growth, central banks were given greater responsibility for managing the economy. Then, after the financial crisis in 2008, and again after the pandemic in 2020, governments rediscovered the power of fiscal policy, running unprecedented deficits<\/a> to finance business and household support.<\/p>\n

Central banks have played a central role in enabling this rise in public spending while tax revenues are down, by buying up<\/a> government debt in record amounts through quantitative easing. As a result of these efforts, global long-term interest rates fell to historical lows in 2008 and have continued falling since<\/a>.<\/p>\n

The subsequent claim<\/a> by one influential economist that central banks are now the \u201cdealers of last resort\u201d, underwriting the markets for public debt, is still controversial. But no one denies the huge growth in central banks\u2019 balance sheets<\/a> since 2008, as they buy both government debt and also some private debt so that financial systems can absorb vast amounts of new borrowing.<\/p>\n

After more than a decade of this extreme monetary relaxation, some see inflationary clouds<\/a> above Jackson Hole\u2019s famous snowy peak. With annual US inflation now above 5%<\/a>, the Federal Reserve is under particular pressure to raise interest rates (or signal such an intention) to help curb inflation before it rises so far ahead of wages that the whole government stimulus starts to fall flat.<\/p>\n

But even in a luxury ski resort, the Fed is on very thin ice when it considers any rise in interest rates. Efforts to tighten monetary policy in 2013 sparked the infamous so-called \u201ctaper tantrum<\/a>\u201d, which left rich countries\u2019 stock markets teetering, and some emerging economies caught between their exchange rates weakening and their debts becoming more expensive because they were priced in foreign currency.<\/p>\n

Now, once again, central bankers from America, Europe and China know that interest rate rises could mean debt-exposed regions \u2013 especially in Africa and central Asia \u2013 are brought to a shuddering halt for similar reasons.<\/p>\n

Point of interest<\/h2>\n

Some leading economists argue that it will not play out like this. They suggest that the \u201cnatural\u201d level of interest rates has fallen<\/a> and need not return to previous heights. Environmentalists, meanwhile, argue that low interest rates are essential to borrow cheaply to fund massive carbon-reduction investments<\/a>.<\/p>\n

Contrary voices, heard more loudly by those who play the markets, believe a short-term rise is unavoidable<\/a>. Chronically low interest rates are under fire for exacerbating inequality, as the rich gain more from swollen asset prices than the rest do from higher output and employment<\/a>.<\/p>\n

\n

\"Mountain

Monetary mountains to climb?<\/p><\/div><\/figure>\n

With such a weight on their shoulders, those logging on to Jackson Hole may be secretly relieved that \u201cmodern monetary theory<\/a>\u201d \u2013 which sees nothing inherently unsustainable in governments continually borrowing heavily at low interest rates \u2013 now gets a respectful hearing<\/a> in places that once flatly rejected it. They would never concede that quantitative easing is essentially MMT in action, but the more that these ideas are tolerated, the less their ultra-loose monetary policies come in for criticism.<\/p>\n

But at the same time, other economists – including one who correctly called the \u201cdeath of inflation\u201d 25 years ago – now see a significant risk<\/a> of its re-emergence.<\/p>\n

As COVID-19 spread last year, central bankers demanded a bigger fiscal response<\/a> to spread the burden of sparking a recovery. Governments duly complied with an expensive
\nround of stimulus packages<\/a>. Now the pressure is back on the bankers, to keep the money flowing without making everyone pay a higher price.\"The<\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Alan Shipman, Senior Lecturer in Economics at The Open University, writes for The Conversation about the upcoming of the annual meeting of the world’s central banks, which will be held online this year. The world\u2019s central bankers won\u2019t be riding into town to save the world this year. Their annual gathering in the US, at […]<\/p>\n","protected":false},"author":19,"featured_media":19022,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[29],"tags":[1525,1640,2200],"class_list":["post-19016","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-maths-statistics","tag-news-home","tag-ou-home","tag-the-conversation"],"_links":{"self":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts\/19016","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/comments?post=19016"}],"version-history":[{"count":0,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts\/19016\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/media\/19022"}],"wp:attachment":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/media?parent=19016"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/categories?post=19016"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/tags?post=19016"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}