With politicians in the U.S. and Europe abrogating responsibility for getting their zones of the world economy growing again, the task falls by default to central bankers. Yet they are standing pat for fear of being left spent in the event the feared second dip of recession materializes.
Economists have been cutting their global and national economic growth forecasts in recent months, but leading central banks have taken only relatively modest steps to stimulate economies. To deploy a cliche, they may have been talking the talk. They are not walking the walk. This week:
- the ECB left its benchmark interest rate unchanged at 0.75%. Last week, its president, Mario Draghi, promised to do “whatever it takes” to preserve the euro;
- the Bank of England, which last month announced an increase of £50 billion ($78 billion) in its quantitative easing (QE) program, held its benchmark interest rate at 0.5%;
- The U.S. Federal Reserve confirmed that it would keep keep its extremely low interest rates (0.0-0.25%) until late 2014.
Meanwhile, in the world of factory floors and customers, the JP Morgan Global Manufacturing Purchasing Managers’ Index (PMI) fell to 48.4 in July from 49.1 in June–edging even further away from the dividing line of 50 that separates contraction from expansion. Like central bankers in China, those in Europe and the U.S. are holding out the hope that the policy actions they have already taken will kick-in in time. That they are now keeping the last of their policy powder dry suggests that they are hoping against all hope.