In October, 2019, Mario Draghi is due to come to the end of his eight-year term as President of the European Central Bank. He is in a race against time to avoid an unusual accolade for a central banker: never once to have raised interest rates during his tenure.
In decades gone by, central bankers expected to earn their spurs by their expert navigation of the ebb and flow of the business cycle, skilfully steering the economy between the Scylla of recession and the Charybdis of inflation with the finely-tuned tiller of interest rate policy.
For Mr Draghi, however, no such dexterity has been required. All he has done is cut rates – eight times, from 1.5% to zero. The reversal has never materialised.
He is far from alone. The Bank of England’s Mark Carney has been even less busy. In the sixty-six months Carney has been in post as Governor, the tiresome chore of adjusting interest rates has troubled him for only three of them – and the policy rate remains a mere quarter of a percent above its lowest level in three hundred years.
Yet the subdued activity levels at the ECB and the BOE are as nothing compared to the splendid lassitude of the Bank of Japan. Not only has its current governor Haruhiko Kuroda (in office since 2013) never raised rates; his immediate predecessor Masaaki Shirawaka, whose term began in 2008, didn’t either.
This brief survey of three of the world’s premier central banks illustrates a striking fact about the current global economic conjuncture.
GDP growth, inflation, and unemployment in the world’s most advanced economies have long since recovered to historically normal levels following the crisis of 2008. Yet their financial systems remain mired in a gigantic and unprecedented experiment – one which has resulted in a decade of monetary policy paralysis.
Recent turbulence on the world’s stock markets suggests that many investors are nervous at the prospect of the central bankers’ bringing this Great Monetary Experiment to a close. Less fretted over – but no less problematic – are the consequences of allowing it to continue.