The Global Economy is Not as Bad as They Say it is


A global dash to lower interest rates is meeting resistance.

Major central banks have seen more internal dissent over adding stimulus or have opted to leave monetary policy unchanged in recent weeks.

“The economic situation is not all that bad,” Jens Weidmann, from the European Central Bank’s rate-setting committee, told a German newspaper this month. “I will do what I can to ensure that interest-rate increases are not put off for any longer than necessary.”

“It’s becoming more difficult for investors to read central banks,” said Frederik Ducrozet, an economist with Pictet Wealth Management in Geneva. “The market is probably getting a bit ahead of itself in pricing more rate cuts.”

Fed Chairman Jerome Powell last week cited “slower growth abroad and trade policy developments” as the rationale for cutting the CB's benchmark rate by .25%, to a range between 1.75% and 2%.

The 17 Fed officials present at the policy meeting in Washington—10 voters and 7 nonvoters—were divided as well over whether they were likely to lower rates again this year, according to their economic projections. Even so, Mr. Powell retains solid support to follow the policy course he thinks is needed. In Frankfurt the same can not be said for ECB President Mario Draghi. In an unprecedented rebellion, resisters are fighting back over his package of rate cuts and bond purchases unveiled on Sept. 12 that had been hotly anticipated by investors.

“There is indeed some increasing uncertainty…but we also see signals of strength in the euro area,” Ms. Lautenschläger said in an interview last month. “It is much too early for a huge package.”

Some worry that the aggressive stimulus policies such as negative interest rates and large-scale bond purchases pose their own risks. Dutch central-bank Gov. Klaas Knot criticized the ECB’s latest stimulus package in a statement, noting worrisome signs of bubbles in housing and other assets and a shortage of low-risk government bonds as a result of the central bank’s purchases.

In the U.S., Boston Fed President Eric Rosengren explained his recent hawkish dissent in a statement, saying more stimulus was “not needed for an economy where labor markets are already tight” and could fuel financial instability.

Mr. Powell also noted the U.S. economy’s strengths, but said at a press conference last week that the Fed rate cut was needed to keep the expansion going. “We are adjusting monetary policy…to try to support what is in fact a favorable outlook.”

Read full article here


Economics, Finance and Investing