HUNTSVILLE, Ala, – We’ve grown accustomed to central banks swooping to the rescue when events overtake governments’ ability to address economic and market fractures.
There are good reasons to wonder if that era may be coming to an end.
In the past week both the Federal Reserve and European Central Bank have come under intense pressure to act; the Fed from a slowing economy and steep market sell-off and the ECB from a buyers strike on Italian and other euro zone bonds.
Both chose to intervene. The Fed moved to keep interest rates at virtually zero until 2013, while the ECB, in a change in its recent tactics, once again waded into bond markets to buy up and support peripheral euro zone government debt.
Both, however, acted despite serious internal divisions over the policies, and more importantly, against a backdrop of political disagreement and discord that must threaten the central banks’ ability and resolve to take further steps.
“We have had a gathering crisis of political economy this year, which is partly about economic growth and jobs, but also and importantly, about a malaise in politics and policymaking, in which governments are seen as unwilling, unable, divided or ineffective when it comes to economic management and stability,” George Magnus, a senior economic adviser to UBS, wrote in a note to clients. ”