Central bankers may have no quick fix as markets swoon, economy weakens
Global central bankers, eager to see the economy stand on its own feet, faced the rude reality this week of market turmoil threatening already faltering growth and prolonging world reliance on easy money.
Stocks slumped again on Wednesday pushing S&P 500 losses to almost 8 percent since mid-September. The dollar fell and U.S. bond prices soared after weak Chinese inflation and U.S. producer price and retail sales data fanned fears the world economy could be even weaker than thought.
When stock markets turned south last week after rallying for much of this year, many policymakers initially played that down. In fact, the sell-off could be seen bringing some healthy volatility back to markets that officials worried had become too complacent to risks ranging from tensions surrounding the conflict in Ukraine to the Ebola outbreak.
“It reminds me of the massive flight to quality we saw during the (2008) banking crisis, when there were fears that the whole global economy would tip into depression,” said Nick Stamenkovic, a strategist at Edinburgh-based RIA Capital Markets.
Economists familiar with central bank policy making say there is no doubt that officials are worried by the markets’ sharp turn for the worse. It is less clear how and when will they respond.
Ever since the financial crisis hit six years ago, central bankers have been at the forefront of a campaign to save the global economy, slashing rates to zero and pumping trillions of dollars into the world economy via unconventional policies such as buying vast amounts of government debt.
Central bank officials from Washington to Tokyo face questions that have dogged them in recent years: Is recent volatility just a sign of markets adjusting to a host of issues, from the potential for rising interest rates to tensions in the Middle East? Or is the world economy backsliding?
Source: Reuters- Central bankers may have no quick fix as markets swoon, economy weakens
