August is now behind us, and as a sign of the concern central bankers share over the weakness found in the world's major economies, there is no sign of any effort to rise target rates at central banks.
From the Fed to the European Central Bank, to the Bank of England and beyond, there appears to be no appetite for attempting to return to more "normal" monetary policy. We're apparently in a state of virtual permanency when it comes to "extraordinary" monetary policy which involves keeping the target interest rate at zero or near zero for years on end.
In fact, the only movement we've seen at a major central bank in recent days comes from the Bank of England where the bank cut the target rate from 0.5 percent to 0.25 percent. Except for that change, and continued declines in Australia, nothing has moved since last Spring:
In late July, the Fed declined to raise the Federal Funds rate. But, of course, they maintained the usual posture of saying that a rate hike was just around the corner. Cutting through the posturing, Bloomberg wondered at the time if the Fed is becoming even more dovish.
Now, the Fed appears likely to do nothing at its next meeting. The Wall Street Journal avers:
[W]ith inflation holding below the Fed’s 2% target and the unemployment rate little changed in recent months, senior officials feel little sense of urgency about moving and an inclination toward delay, according to their public comments and recent interviews.
This comes just weeks after the Bank of England cut its key interest rate to the lowest rate of its 322-year history, dropping the target rate to .25 percent.
The given excuse for this was the chance that Brexit might lead to an economic slowdown. Thus, according to BofE Governor Mark Carney:
“There is a clear case for stimulus, and stimulus now,” Mr. Carney said at a news conference, in the latest attempt by officials to reassure Britons that they are acting decisively.
Meanwhile, as one looks around the central-bank landscape, one is left wondering what central banks will do when something really goes wrong. With rates all already so close to zero (or even below zero) any serious economic disruption, such as an obvious recession, is increasingly likely to lead to helicopter money, negative rates, or an intensification of attacks on cash, such as that found in Ken Rogoff's recent book The Curse of Cash.
Another possible route to "stimulus," of course, is good ol' fashioned fiscal policy such as spending on public works and other types of government spending.
The European Central Bank urged European governments to do as much last week when ECB president Mario Draghi sang the praises of government stimulus and criticized Germany for not spending enough.
The European economy overall is so weak, though, that projections suggest that even with massive amounts of monetary stimulus, price inflation will not reach the ECB's 2 percent target any time soon. With its credibility on the line, however, the ECB appears reluctant to cut its deposit rate even further below negative 0.4 percent, or its MRO rate below zero, where it already sits.
"Wait and see" appears to be the approach for now.
Through August, here are central bank target rates and resources:
- USA: 0.5%
- Canada: 0.5%
- UK: 0.25%
- Australia: 1.5%
- China: 4.35%
- ECB: -0.4%
- Japan: -0.1%
The rates used for this analysis are:
- Fed. Reserve: Federal Funds Rate
- Bank of England: Official Bank Rate
- Reserve Bank of Australia: Cash Rate
- Bank of Japan: Overnight Call Rate (Observed); (Target Rate)
- Bank of Canada: Overnight Target Rate
- ECB: Deposit Facility Rate
- People's Bank of China: Overnight Rate
Here's a look at recent changes in closer detail: