Fed and ECB Are Stuck in a Shrinking Corner

The European Central Bank and the Federal Reserve will be under even greater scrutiny over the next 10 days as their policy-making committees discuss recent economic developments, update their assessment of prospects and adopt whatever actions and guidance they deem necessary. The outcome will most likely satisfy those looking for the world’s two most influential central banks to further loosen monetary policy. It will most likely do little to improve what has been a steadily darkening outlook for the global economy. And it will without a doubt disappoint those, both inside and outside the central banks, who are looking for the spotlight to pivot away from monetary policy to structural reforms and, for some European countries, fiscal tools that are better suited for the task at hand. Indeed, it could well only intensify the spotlight on monetary policy, making even more explicit the increasingly tight corner these institutions are in.

Don’t get me wrong. Most central banks, and the many of us who still have deep respect and affection for them, would like nothing more than for them to deliver better economic outcomes or hand off efforts to bolster the global economy to others or both. The best that we can hope for, however, is that they will be able to navigate the minefield they are in without being accused of not doing enough, of causing economic harm and of contributing to undue financial volatility. Indeed, the most likely outcome is that they will be viewed as taking measures that are deemed ineffective or, even worse, counterproductive. And it’s a dilemma that is unlikely to be resolved soon.