Despite the work I have editing a new book (writing it with a colleague who happens to be an ex-student (IB) of mine), I just cannot ignore the news, especially when a lot has been going on lately in the world.
What am I referring to?
- the escalating trade war between the US and China
- the rising chances for a no deal Brexit
- China and the Hong Kong protesters
- Italy's political instability
- and, unfortunately, quite a few other 'developments'
Since I need to maintain focus on IB Economics, I will refer to an article in today's NYT titled One Crazy Day Showed How Political Chaos Threatens the World Economy What is of special interest to me and the course I teach are a couple of points made by Jerome Powell, Fed Chairman (the Fede is the Central Bank of the US) and by Mark Carney, the Governor of the Bank of England, about the limits of monetary policy.
This quote from the article refers to Jerome Powell:
Mr. Powell delivered a nuanced speech signaling the Fed was committed to a “risk management” approach, of adjusting policy to try to prevent bad things from happening. His words kept the Fed’s options open.But he made clear that a breakdown of global trade relations was not the kind of thing that the Fed’s interest rate policies were well suited to addressing.“While monetary policy is a powerful tool,” Mr. Powell said, “it cannot provide a settled rule book for international trade.” The central bank can only adjust policy to try to respond to the ways trade policy changes affect the overall outlook. The implicit message: If erratic trade policy undermines the economy, the Fed’s tools are likely to have only limited ability to overcome the damage. Interest rate cuts in that situation would be like giving pain relievers to someone with a broken bone — better to have than not, but unable to solve the underlying problem.
And this one to Mark Carney:
Food for thought!Also speaking at the Jackson Hole symposium was the Bank of England governor, Mark Carney, who described a limited ability to use monetary policy to offset the damage from Britain’s potentially messy exit from the European Union this fall.“In the end, monetary policy can only help smooth the adjustment to the major real shock that an abrupt no-deal Brexit would entail,” Mr. Carney said, and that ability would be constrained by the need to keep inflation under control.
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