Over the last four years, central banks around the world have flooded the financial system with money using a creative mix of monetary policy tools. Many, like Dallas Fed President Richard Fisher, argue central banks have gone above and beyond the call of duty. Others argue the opposite, and believe even more could be done to help stimulate economic recovery and pump up financial markets.
This is an ongoing debate and the topic of one panel at the Milken Institute's 2012 Global Conference. The Daily Ticker's Aaron Task sat down with panelist Barry Eichengreen, professor of economics and political science at the University of California, Berkeley, to discuss the current state of U.S. and global monetary policy.
"Lots of people here are talking about the global liquidity glut," he says. "There are always risks, but I think the risk of central banks not doing what they have been doing and exiting too soon are the risks to worry about."
Eichengreen currently sees plenty of downside economic risks as growth has started to decelerate from the U.S. to Europe to China. In the U.S. there has been a string of mixed economic data and Europe remains on the brink of disaster as a number of bad loans in Spain threatens to upend its banking sector.
"The odds of QE by another name are rising," he says. "I think the Fed could do more."
He also believes the European Central Bank (ECB) and Bank of Japan could and should do more. (On Thursday, the ECB kept interest rates unchanged at 1% and President Mario Draghi left the door open for further stimulus.)
By contrast, Fed president Fisher told The Daily Ticker in an interview at the conference that it is now up to Congress to take the reigns to promote economic and jobs growth. Eichengreen is sympathetic to that view. However, he points out that "fiscal policy is on hold and we won't [likely] get a constructive policy this year."
Central bankers "are right to be uncomfortable about the fact that they are the policymakers of last resort, but they are the only adults in the room," Eichengreen says.