With the world's top central bankers gathering in Jackson Hole, Wyoming for their annual retreat, amid the global economy's worst credit crunch in a generation and slowing GDP growth in every region, BloggingStocks asked a few economists what, in their opinion, should be on the central bankers' minds. Economist David H. Wang – "I bet they sneak away for a few minutes to watch the United States versus Argentina [2008 Olympics] semi-final basketball game today. I would. Seriously, on the one hand central bankers face the prospect of another round of housing-related write-offs and the need to intervene to keep markets liquid. On the other hand, we still have oil-fed inflation in the system, so my sense is they will issue a statement indicating that the major central banks 'stand at the ready to provide additional liquidity and take other measures' to keep markets functioning."
Economist Peter Dawson – "I would really like to see some European Central Bank comments from [President Jean-Claude] Trichet that he's ready to cut rates and that the greater risk in Europe, like the U.S., is toward recession. Demand in Europe is slowing, and if E.U.-U.S. trade flows continue to decline, that will prolong the recession. Hence, ECB monetary policy is intrinsic to the recovery story."
Economist Glen Langan – "Probably the most important item on their agenda, after maintaining liquid, functioning markets, concerns long-term interest rates. They haven't fallen, due to banks' reluctance to lend, in order to repair their balance sheets. Housing faces a 2-3 year recovery period but we'll need long-term mortgage rates for 30-year fixed loans to drift back toward 6.00% or 5.75% to speed housing's transition back to health. If monetary officials don't find a way to get long-term rates to trend lower, that delays the recovery."
Economist Mark Chandler – "The first thing they need to do is get off the inflation obsession. The ECB is the worst in this regard, but the Bank of England is close behind. It's as if some central bankers have operated in a vacuum and haven't seen the economic slowdown around them. The slowdown has been abrupt, and if we're not careful, the recession is going to be longer and deeper than most expect. Three or four percent inflation is a concern, but it's mostly oil driven and it's not the biggest concern when growth is at a standstill."
Economist Richard Felson – "I would put financial stability at the top of the list, and by that I mean the bond and credit markets. The markets will face two more adjustments ahead, probably more mortgage write-offs and some type of infusion for a cash-strapped Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Credit markets remain in distressed condition, so central bankers will need to build-up and ready hundreds of billions of dollars more in emergency credit to prevent markets from freezing again like they did at the start of the housing slump."
Economic Analysis: The themes appear to be: maintain liquid and functioning markets, be ready for another round of mortgage write-offs and/or credit market hiccups, and lower interest rates to stimulate growth, regionally and globally. Here's hoping the Jackson Hole crew is listening.
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Reader Comments (Page 1 of 1)
8-22-2008 @ 2:28PM
william lindblad said...
Meeting should have been held in Mogadishu