Several weeks ago I attended a seminar where current and former Monetary Policy Committee members from the ECB and US Federal Reserve were leading speakers. The interesting part of the discussion focused on how dependent their respective European and US Government’s had become on the monetary authorities for taking responsibility for macro-economic management. The speakers stressed that monetary policy cannot fix a broken fiscal model, and were therefore frustrated with the high expectations that governments and financial markets place on monetary policy to stabilise the economy. In fact, the Central Bank representatives were of the view that monetary policy plays a distant ‘second fiddle’ to fiscal policy.
It is refreshing to know that our Central Bankers agree that real variables such as productivity, taxes and government versus private spending shape real economic outcomes, as opposed to helicopter drops of money showered from time-to-time by the monetary authorities. This agrees with my long-held views that regular readers of this blog will find familiar. But this raises the following questions…
If Central Bankers question the power of monetary policy to influence economic activity, why do they draw attention to themselves with regular policy meetings, minute releases, official speeches and unofficial media leaks? Why does the Federal Reserve Open Market Policy Committee need to meet 10 times a year? Why does Mario Draghi face the media every six weeks to answer questions he doesn’t know the answer to?
Monetary policy needs a rethink. For starters, why not reduce the number of official meetings to just once or twice per year? This would send a clear “…don’t look at me to fix your problems…” message to Government’s and financial markets alike.