• Thursday, March 28, 2024
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Central bankers rethink everything at Jackson Hole

Central bankers rethink everything at Jackson Hole

For the world’s central bankers gathered in Jackson Hole, there was a sense that things would never be the same again. The developed world had experienced a “regime shift” in economic conditions, James Bullard, president of the St Louis Federal Reserve, told the Financial Times.

“Something is going on, and that’s causing I think a total rethink of central banking and all our cherished notions about what we think we’re doing,” he said. “We just have to stop thinking that next year things are going to be normal.”

Interest rates are not going back up anytime soon, the role of the dollar is under scrutiny both as a haven asset and as a medium of exchange, and trade uncertainty has become a permanent feature of policymaking.

Policymakers acknowledged they had reached a turning point in the way they viewed the global system. They cannot rely on the tools they used before the financial crisis to shape the economic environment, and the US can no longer be considered a predictable actor in economic or trade policy — even though there is no imminent replacement for the US dollar insight.

The gathering at Wyoming

came as US President Donald Trump on Friday vowed to raise tariffs on $250bn worth of Chinese imports. His threat capped a tumultuous day on the world’s financial markets that began with Beijing announcing new levies on $75bn of US imports and saw Jay Powell, Federal Reserve chairman, caution that it was not the central bank’s job to run trade policy.

The resulting market sell-off suggested investors were waking up to the reality that there will be no deal between the world’s two largest economies and no clear end to the trade conflict, just continued uncertainty.

“They’ve priced in that there’s going to be uncertainty, there are going to tweet, there are going to be threats and counter-threats,” said Mr. Bullard. “And that’s the way it’s going to be.”

He said it was becoming clear that there had been two longterm changes to the underlying economic environment. The first is that central banks will not be able to return to the policies they relied on on before the global financial crisis. Policy rates will not rise again to 5 percent and central bank balance sheets will not soon return to zero.

This problem is worse for Europe and Japan than it is for the US, but given the interconnectedness of the global economy, it is relevant around the world.