DWS | “First, do no harm.” That command may, or may not have been part of the Hippocratic Oath among medical practitioners since ancient times. Central bankers, however, appear increasingly keen to follow that maxim on both sides of the Atlantic. On Wednesday, the U.S. Federal Reserve (Fed) once again lowered key rates by “only” 25 basis points to a target corridor of 1.75%-2.00%. And once again, its reasons included subdued inflation as well as risks resulting from weaker global growth and various trade conflicts, justifying another insurance cut. In that sense at least, President Trump has seems to have influenced central-bank policy.
eurozone monetary policy
BoAML think that national fiscal buffers will be the only device to face the next cyclical downturn. In fact, with a fairly mild cyclical shock, the Stability and Growth Pact would be severely stressed. The solution can be a growth-stabilising euro area budget. If not, monetary policy may have limited further space.
It seems like the million-dollar question: what if the ECB stopped sitting on its hands, change its monetary policy and pump some cash into the suffering euro peripheral countries? George Mason University Economics professor Tyler Cowen wonders about the consequences in his blog Marginal Revolution.