Persistent sluggish growth around the world has had central banks trying everything in their toolboxes to get things moving. And they’re even making up whole new toolboxes, trying unusual measures such as negative interest rates. But more and more economic observers believe that central banks have been taking too much of the burden of supporting the economy and that they are at or near the limits of what they can do.
“Central banks really have reached the point where they really, I think legitimately, can throw the ball back to the government and say, ‘Look, we’ve done our bit here,’” said Paul Sheard, chief global economist for S&P Global.
Central banks do monetary policy. Governments can control fiscal policy, basically taxing and spending. But there haven’t been big moves there in recent years, for various reasons. In Europe, there was concern about governments racking up debt, while in America, political gridlock has held things back.
New fiscal policies would require politicians to actually do the work of lawmaking, which is never a safe bet. But if they do, central bankers may appreciate the break.
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