Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Central bankers face political shocks, and hope to avoid the worst

EconomyAug 25, 2019 08:16AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

By Howard Schneider and Ann Saphir

JACKSON HOLE, Wyo. (Reuters) - Global central bank chiefs know their job is to keep the economy out of the ditch.

What became clear at the U.S. 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 Governor Philip Lowe said on Saturday, a day after China and the United States slapped more tariffs on each other's goods and U.S. 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 U.S.-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 U.S.-China trade war at the epicenter but also including the possibility of a disruptive British exit from the European Union, 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 the French seaside resort of Biarritz as a "last moment" for its members - the United States, 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 Governor Mark Carney said here on Friday.

Small countries like Sweden and Turkey, buffeted by volatile capital flows as central banks worldwide cut rates, are now struggling to deal with the possibility that the global trading order may be changing for good.

Meanwhile, large nations worry they will slip into a rut that may be hard to escape.

For the U.S. central bank, if trade uncertainty drives down business investment and starts to hurt consumer spending, it may find itself cutting rates back to zero with the economy still muddling along, forcing Powell and his fellow policymakers to weigh whether to restart crisis-era tools even outside a crisis or recession.

"There's only so much a monetary policy action can do," Cleveland Fed President Loretta Mester told Reuters on the sidelines of the conference on Saturday. "You have to recognize that the U.S. economy is affected by what's going on in the rest of the world ... I do worry about this whole undermining of institutions globally."

In a development that has cheered some policymakers, Germany has signaled it may deliver some fiscal stimulus to offset a manufacturing slump. But with the European Central Bank signaling it too is ready to battle slowing growth by easing policy further, Powell's Fed may be forced to act despite its desire to stay above the day-to-day fray of changing trade policy.

"You need to respect that we are part of the global economy; the global economy is slowing, other central banks are easing, and they are responding to a common global slowdown," Fed Vice Chair Richard Clarida said on Friday.

"What monetary policy can do is to use its tools to do the best it can to keep the economy close to full employment and stable inflation; depending upon the shock hitting the economy and depending upon the response to that shock, the insulation may not be perfect," Clarida said.

Central bankers face political shocks, and hope to avoid the worst

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
gordon gamwell
RetiredIT Aug 25, 2019 9:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The Fed has ruined America.  Trump is trying to save America from China and Liberal Democrats.
Al Vlaj
alvlaj Aug 25, 2019 9:47AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Trump’s actions ironically are EXACTLY what liberal democrats would do. That is why on this issue you dont hear them (including Bernie) complaining at all about it. Liberal Democrats are anti-Free Trade, for devaluing the dollar and for unnecessary monetary easing. Oh, sorry, I just described Trump as well.
gordon gamwell
RetiredIT Aug 25, 2019 9:43AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The Central banks have created all the turmoil in the world by ruining their economies with artificial interest rates.  That and the fact that we transferred all our manufacturing out of America over to  China and other countries - that is what has ruined America.  Once the Fed has finished sucking the wealth out of the baby boomers and elderly by having ultra low interest rates tricking everyone into the stock market, and next they will be crashing the stock market 60% - once all the middle class wealth is gone - they will have succeeded in ruining America.
Al Vlaj
alvlaj Aug 25, 2019 9:43AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
And so your answer to this is to have lower rates as dictated by Trump? Pick a view. Are you for lower rates like Trump is or against lower rate because of the democrats (which means you are against what Trump is pushing).
Brad Dover
Brad Dover Aug 25, 2019 8:23AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The FED cannot save us from trump even if rates go to ZERO
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email