Central bank officials insist that they are prepared to act aggressively if another recession flares. The E.C.B. stands prepared to stimulate the eurozone, and the Fed is signaling that it could soon cut interest rates to try to get ahead of mounting risks in the United States.
But economists across the globe say central banks can no longer be sole saviors the next time a downturn hits. That reality is colliding with political constraints in the United States and Europe, where lawmakers may prove unable — or unwilling — to quickly roll out expensive stimulus packages.
“Fiscal policy has a much more active role to play, and it is not yet equipped to do so,” Olivier Blanchard, a former International Monetary Fund chief economist, said last month at a central banking forum in Sintra, Portugal, specifically referring to Europe.
When it comes to monetary policy, “surely there is not enough room to respond to even a run-of-the-mill recession,” he said.
Christine Lagarde, who has been nominated to succeed Mario Draghi as head of the European Central Bank and currently heads the International Monetary Fund, has warned that central banks are likely to be the main line of defense given fiscal constraints.
“High public debt and low interest rates have left many countries with limited policy room for maneuver,” Ms. Lagarde said in a June blog post. She added that in a downturn, nations would need to use their economic tools together, with “decisive monetary easing and fiscal stimulus wherever possible.”
Article source: https://www.nytimes.com/2019/07/09/business/economy/recession-world-economy-federal-reserve.html?emc=rss&partner=rss
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