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Central Banks Risk a Race to the Bottom by Cutting Rates in Unison


Temporary benefits, like an increase in exports or inflation stabilization, might take the pressure off policymakers to enact longer-term economic changes, like industrial reorganization and work force training.

And central bank moves could draw the attention, and even action, of politicians who can directly intervene in currency markets.

Mr. Trump, for one, is convinced that other central banks set easy policy in order to devalue their currencies. He often suggests that the Fed should try to catch up.

“The Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers” to compete, Mr. Trump wrote on Twitter last Thursday. He previously tweeted about the European Central Bank’s reorienting its policy to lower the value of the euro, saying, “They have been getting away with this for years, along with China and others.”

The European Central Bank is expected to cut rates further into negative territory next month. Mr. Woo of Bank of America said he saw such moves as targeting currency, given that the demand-stoking benefits of negative rates are widely disputed.

Most major central banks — including the eurozone’s — are free of politics and have not engaged in outright manipulation, economists say. They focus on domestic inflation goals, which currency levels can, but do not always, drive.

China, where the central bank answers to the government, does have a history of intervening for competitive reasons, most economists agree, though the International Monetary Fund says the price of the renminbi is reasonable under current economic conditions. That makes the White House’s move to label China a manipulator mostly symbolic, because the I.M.F. would play a key role in making China realign its currency.


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