An excellent article by Ip (http://www.wsj.com/articles/central-bank-tools-are-losing-their-edge-1474501934) … First, he explains what happened:
“…the Bank of Japan on Wednesday announced two new central bank firsts. It now wants inflation not just to meet its 2% target, but to overshoot it. And it will now target not just short-term interest rates, but long-term government bond yields.”
And in the US:
“What’s notable about the Fed’s announcement wasn’t the expected hint that it will raise rates again soon, but that there will be fewer rate increases thereafter than previously expected.
The most sobering disclosure was that officials now peg the U.S.’s long-term growth rate at 1.8%, down from 2% in June and 2.5% in 2011. “We’re struggling with…what is the new normal in this economy and in the global economy, which explains why we keep revising down the rate path,” Fed Chairwoman Janet Yellen told reporters.”
He concludes:
“Given all this, what are central banks to do? The answer, quite possibly, is nothing, or at least nothing more than what they’re now doing.”
“Today, there isn’t any similar pressure on yields from borrowing or inflation. Indeed, the Bank of Japan’s zero-bond-yield target is higher than the negative yields bonds have recently carried. The lesson is that while central banks have tools at their disposal, there is only so much they accomplish by themselves.”
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