Diane Swonk, Chief Economist
Mar. 9, 2010 – 10:35 a.m. CT
Consensus on Central Bank Policy Getting More Dovish
In meetings at the National Association for Business Economics (NABE), the consensus is firming that the central banks among the developed countries will not be raising rates anytime soon. The exception is Australia, which has already begun to raise rates.
In contrast, the developing economies will start to tighten more aggressively in the months ahead. The sense, however, is that any tightening that we see will not be enough to derail recoveries in those economies.
Moreover, more careful analysis of money supply suggests that the global money supply continues to CONTRACT in response to the financial crisis. The only major exception is China. This adds a new perspective on the view that disinflation is a larger problem for central banks in the near-term than accelerating inflation.
Separately, Greece is only the first of many sovereign debt aftershocks to hit financial markets. Europe is not likely to let Greece go, although there is no guarantee. The European Central Bank seems to prefer to let Greece fail, while the Germans and French – who have no money – seem to want to save it.
The Bottom Line: It's hard to be optimistic at meetings with economists, central bankers and policymakers from around the world. That said, it is reassuring to know how much scenario planning is being done by policymakers to be prepared for whatever might arise.
