Global Central Bank Watch

Global Central Bank Watch

Vaccines won't preclude looser policy

The encouraging news about vaccines has led us to expect most restrictions in advanced economies to be removed by Q2 next year, allowing them to embark on steeper recoveries towards their pre-virus path. But while some have speculated that this will prompt the major central banks to consider policy normalisation, or at least to stop loosening, we disagree. In this Global Central Bank Watch, we outline seven reasons why monetary policy may be loosened further in the coming months and will then remain ultra-loose for several years to come.

Global Central Bank Watch

Average inflation targets from a global perspective

For the past thirty years the orthodoxy has been that central banks should focus on controlling inflation, targeting a rate (normally 2%) over a key policy horizon (often 18 months to two years ahead). In his address to the annual Jackson Hole monetary policy symposium, US Federal Reserve Chair Jerome Powell signalled a break with that orthodoxy by announcing that the Fed would now adopt “a flexible form of average inflation targeting”.

Global Central Bank Watch

Lending facilities offering vital support

Global Central Bank Watch

Taking stock of central bank lending facilities

Traditionally, when central banks respond to economic downturns, slashing policy interest rates makes for the headline act. This time, with rates already near zero at the onset of the crisis, rate cuts were only the warmup and, in some cases, didn't even make the line-up. Instead, policy action by major central banks has in large part come in the form of a growing list of lending facilities.  Many of the schemes – such as the BoJ's “Special Operations” – are brand new. Some – including the Fed's Commercial Paper Funding Facility – are GFC-era schemes that have come out of retirement. Other, existing facilities – like the ECB's TLTROs – have been beefed up.

Global Central Bank Watch

Monetary policy pushing new limits

What a difference a month makes. At the time of our last Global Central Bank Watch, monetary policymakers in advanced economies had taken a cautious but relatively sanguine attitude to the coronavirus and made only small policy changes. Now, they have pulled out just about every stop.