Troubleshooting or making trouble?

摘要

This is a particularly challenging time for central banks, especially in industrial countries. They are in 'crisis management mode', seeking to contain collateral damage from the liquidity dislocations and designing 'crisis prevention' measures that would reduce the probability of future turmoil. Central banks face many headwinds in delivering a satisfactory and durable outcome, given stagflationary pressures. This is most apparent in the US where the Federal Reserve directly feels the tug of war as it seeks to deliver on its dual objective of countering inflation and maintaining high employment. But it is also an issue for the European Central Bank. As central banks confront these difficult challenges, they will likely face another complicating issue. Some of the recent crisis management steps will, in themselves, lead to an institutional realignment of the US financial system. Central banks would be well advised to take this into account lest they end up reacting to the world of yesterday rather than that of tomorrow.