Confidence Waning in Central Banks’ Ability, Rogoff SaysBy
Harvard professor speaks on Bloomberg TV’s Surveillance
Quantitative easing programs have their limits, Rogoff says
Markets are losing confidence in the ability of central banks to boost inflation and there is a limit to how much quantitative easing programs can accomplish, Harvard University Professor of Economics Kenneth Rogoff said.
Central banks -- notably the European Central Bank and the Bank of Japan -- have enacted sovereign bond-buying programs in a bid to boost anemic price pressures. Yet the euro area’s 1.7 trillion-euro ($1.9 trillion) quantitative easing program has so far failed to push inflation materially closer to the central bank’s target.
“Neither the ECB nor the BOJ has been able to push up inflation expectations -- for that matter, inflation expectations are coming down in the U.S.,” Rogoff told Bloomberg Television’s Tom Keene and Guy Johnson in an interview on Tuesday. “I think there is a loss of confidence in the ability of central banks in the long run to regenerate inflation.”
In a sign that euro-area policy makers don’t see an immediate danger to the recovery, officials at the Frankfurt-based institution, which is forecasting an inflation rate of 1.2 percent in 2017, left interest rates and the stimulus program unchanged last week. Some economists predict an extension by the end of the year.
Headwinds for the region include the fallout from the U.K.’s vote to leave the European Union, Italy’s bad-loan crisis and a looming third parliamentary election in Spain. Banks have complained about the effect of negative rates on their profitability, with Deutsche Bank AG Chief Executive Officer John Cryan calling on the ECB to change course.
In Japan, the central bank is conducting a comprehensive review of the extraordinary monetary easing program launched under Governor Haruhiko Kuroda. Its Sept. 20-21 meeting will be of keen interest to economists and investors.
“I think there are limits as to what quantitative easing can do,” Rogoff, who served as chief economist at the International Monetary Fund from 2001 to 2003, also said. “The government owns the central bank. If you have the central bank buying government debt, it is a lot like having the government issue shorter debt.”
By contrast, the Federal Reserve has already lifted interest rates from their record low and U.S. central bank officials could tighten policy again before the end of this year.
Harvard Professor of Economics Martin Feldstein told Bloomberg Television’s David Westin and Alix Steel that statistics painted too poor a picture of U.S. growth yet overestimated inflation.
“At some point they have to do what they’re there to do” Feldstein said, referring to the Fed. “I think they’re heading intentionally for a higher rate of inflation so that once they’ve gotten to -- say -- an inflation rate of 3 percent, 3.5 percent, that’s when they can jack up short-term rates.”