Global Economic Update
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What is the significance of the central bank? Old school people among you will think the answer is obvious: manage interest rates and money supply to keep inflation under steady control. Central bankers have different ideas. They once liked to think of themselves as technologists, but now they think they are more nuanced-able to “see through” inflation instead of sticking to indicator-driven interest rate increases.
They used to think they only had one job, but now they seem to feel that the world almost needs their input.Mervyn King Recent complaints Regarding the central bank’s “entering the political arena”, and there are good reasons. Data from the Bank for International Settlements shows that references to “inequality” in central bank governors’ speeches have increased dramatically, while the CEO of the Atlanta Reserve Bank (and others) called on the central bank to “play an important role in helping reduce inequality.”Racial inequality brings more Inclusive economy“.
You can also be sure that in the Jackson Hole Central Bank Governor’s (now virtual) meeting, climate change is mentioned in the first few minutes of each speech. At first glance, this seems to make sense. Christina Lagarde of the European Central Bank used the parable of mice, cats and bells to explain it: all mice agree that if cats wear bells, everyone’s life will be better-but no one wants to be that Actually get up and attach the bell.
She said that trying to help place the bell is not mission creep, but “Acknowledge reality“. You can also argue that it is fully in line with the traditional briefings of most central banks: If, for example, climate change in the medium term may be both a serious driver of inflation and a challenge to long-term financial stability, then why the central bank? Shouldn’t it? Are the banks willing to help? Most other central banks agree: The Bank of England lists climate change as a “strategic priority.”
This is an error for many reasons. First of all, most of these things have nothing to do with them. Central banks have tremendous power-but since their leaders are unelected, it is vital to control this power as much as possible. Look at what has happened in the past 10 years when the central bank mixed monetary and fiscal policies. The first is to use quantitative easing to fund anything the government wants, and the second is to turn a blind eye to asset market bubbles and rapidly expanding wealth inequality. Their crazy loose monetary policy has been created.
The wealth of global billionaires has soared during the pandemic for a reason-this is more likely to be the US$120 billion in bonds purchased by the Fed each month, rather than the rapid growth of global GDP (the S&P 500 has risen by 21% so far) This year only). The inequality that central banks around the world are so worried about? They may have made a big impact. In this sense, they have been involved in politics for a long time. It’s just not so good.
The second is once you start the mission creep (because it is like this) where does it end? Climate change may cause inflation.But so is the shortage of HGV drivers (currently causing Supply chaos In the United Kingdom)-So far, no one has suggested that the Bank of England formulate policies to speed up the training of truck drivers. These are the work of other organizations.
However, the most obvious reason is that the central bank has enough work to complete their basic profile. The developed countries are in an imaginable terrible monetary policy trap. Low interest rates are causing asset price bubbles (from housing to NFT) everywhere; ordinary people have no hope of real returns from their cash; inflation is confusing and potentially frightening; the rise of cryptocurrencies is threatening central banks’ Control of transactions and deposits.
For most institutions, just trying to figure out whether inflation is temporary — or not — is enough. That was before you saw a clear way to exit monetary policy over the past decade. Once you let the market bubble, how do you eliminate the bubble?
Try to do it now, all the other things mentioned above, and worry about politics. You may soon discover that you can’t see the micro macro. For example, how do you balance a sharp interest rate hike with rapidly rising inflation while protecting minority groups with high debt levels or low employment levels? If everyone knows you have this kind of conflict, how do you maintain inflation expectations? This is not a job description that most people would write by themselves—especially considering that the last hyperinflation occurred in the 1970s (when the central bank was clearly not independent of politics).
Task creep is a common problem. It may be time for national politicians to start insisting on leaving political issues to themselves, while others can only continue their work. The local council can quickly repair the road. Companies can manufacture, sell and deliver things. Central banks can use monetary tools to control inflation. The whole journey is much easier.