A picture illustration of crumpled kuna, Dollar and euro banknotes, taken in Zagreb January 18, 2011. REUTERS/Nikola Solic
By Howard Schneider
JACKSON
HOLE, Wyo. (Reuters) - Central bankers in charge of the vast bulk of
the world's economy delved deep into the weeds of money markets and
interest rates over a three-day conference here, and emerged with a
common plea to their colleagues in the rest of government: please help.
Mired
in a world of low growth, low inflation and low interest rates,
officials from the Federal Reserve, Bank of Japan and the European
Central Bank said their efforts to bolster the economy through monetary
policy may falter unless elected leaders stepped forward with bold
measures. These would range from immigration reform in Japan to
structural changes to boost productivity and growth in the U.S. and
Europe.
Without
that, they said, it would be hard to convince markets and households
that things will get better, and encourage the shift in mood many
economists feel are needed to improve economic performance worldwide.
During a Saturday session at the symposium, such a slump in expectations
about inflation and about other aspects of the economy was cited as a
central problem complicating central banks' efforts to reach inflation
targets and dimming prospects in Japan and Europe.
ECB
executive board member Benoit Coeure said the bank was working hard to
prevent public expectations about inflation from becoming entrenched "on
either side" - neither too high nor too low. But the slow pace of
economic reform among European governments, he said, was damaging the
effort.
"What
we have seen since 2007 is half-baked and half-hearted structural
reforms. That does not help supporting inflation expectations. That has
helped entertain disinflationary expectations,” Coeure said.
Bank
of Japan governor Haruhiko Kuroda said he is in regular talks with
Japanese Prime Minister Shinzo Abe about opening Japan to more
immigration and other politically sensitive changes needed to improve
potential growth, currently estimated at only around one percent
annually.
Fed
Chair Janet Yellen devoted the final page of her keynote talk on
possible monetary policy reforms to a list of fiscal and structural
policies she feels would help the economy.
Fiscal
policy was not on the formal agenda for the conference, but it was a
steady part of the dialogue as policymakers thought through policies for
a post-crisis world. One of the central worries is that households and
businesses have become so cautious and set in their outlooks - expecting
little growth and little inflation - that they do not respond in
expected ways to the efforts central banks have made.
That
has included flooding the financial system with cash, and voicing a
steady commitment to their inflation targets in an effort to make people
believe they will be met.
Kuroda
acknowledged that household expectations have not moved, and said the
BOJ was prepared to continue its battle to figure out how to shift them.
In modern monetary theory, households and business expectations are
felt to play a defining role in spending and investment decisions, and
thus in shaping inflation and growth.
"Japanese
inflation dynamics remain vulnerable," Kuroda said. "It could be that
long-term inflation expectations are yet to be anchored in Japan" at the
bank's 2 percent target.
The
concern about expectations is a paradox. The Fed for example fought a
difficult battle with inflation in the 1970s, hiking interest rates to
recession-provoking levels and eventually winning a war of credibility
over its ability to rein in price increases.
Some central bankers remain fearful of clipping that cord.
But they also are hunting for ways to jolt the economy out of its doldrums, and a fiscal push is a possible tool.
In
a lunch address by Princeton University economist Christopher Sims,
policymakers were told that it may take a massive program, large enough
even to shock taxpayers into a different, inflationary view of the
future.
"Fiscal
expansion can replace ineffective monetary policy at the zero lower
bound," Sims said. "It requires deficits aimed at, and conditioned on,
generating inflation. The deficits must be seen as financed by future
inflation, not future taxes or spending cuts."
It
was not clear whether such ideas will catch on. But there was a broad
sense here that the other side of government may need to up its game.
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)
https://ca.news.yahoo.com/global-central-bankers-stuck-zero-unite-plea-help-123135496--business.html
Thursday, August 25, 2016
