Central Bankers Appear to Line Up their Defenses
Looks like there has been some international coordination of monetary policy rhetoric lately.</br></br>At the beginning of the week, the central bankers' central bank -- the Bank for International Settlements in Basel -- warned loudly of the risks of moving "too slowly and too late" to raise interest rates back toward normal. As it did before the global financial crisis, the BIS emphasized the need to act early to avoid the booms-and-busts in financial markets and offered all sorts of reasons why today's very low inflation shouldn't be the primary concern of central bankers.</br></br>Central bankers appear to have agreed on a common response.</br></br>In the past couple of days, Federal Reserve Chairwoman Janet Yellen, European Central Bank President Mario Draghi and Bank of England deputy governor Jon Cunliffe have used the same phrases to say: Fuggedaboutit!</br></br>With price and wage inflation not a concern right now, we aren't going to raise interest rates and throw at lot of people out of work to avoid excesses in financial markets or to head off possible asset bubbles, they said. There may come a day when our worries about financial stability will prompt us to hike interest rates, but rates are "the last line of defense." Not now. The "first line of defense" is making the financial system more resilient so it can better withstand shocks and using our supervisory and regulatory "macroprudential tools" to rein in excesses, as we are doing now.