Macroscope | Central banks like the Fed and the ECB can’t save the global economy when governments refuse to play their part
- Fed and ECB actions after the 2008 crisis have been crucial, but they have reached the limits of what they can achieve
- If governments like Germany won’t stimulate and Italy won’t reform, it’s unreasonable to expect more from central banks
The US Federal Reserve and the European Central Bank, the world’s two most influential central banks, are in a bind. As a mood of gloom envelops the global economy, both institutions have been under intense pressure from markets to unleash further stimulus measures.
Yet, while investors expect additional easing, they have never been more sceptical about the ability of central banks to stabilise markets and stimulate growth.
While both central banks are loath to precipitate a sharp sell-off by failing to meet investors’ expectations, the markets, and indeed central bankers themselves, doubt the efficacy of monetary policy, given that the threats and impediments to global growth are beyond central banks’ control.
Even in America, whose economy is still relatively buoyant, growth has slowed markedly as the trade war has intensified. Manufacturing output shrank last month for the first time since 2016, while a gauge of consumer sentiment suffered its sharpest fall since 2012.
