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Central bankers have limited ability to cushion the global economy from the headwinds of mounting political uncertainty, said Reserve Bank of Australia Governor Philip Lowe.
“We are experiencing a period of major political shocks,” Lowe said Saturday at the Kansas City Fed’s retreat in Jackson Hole, Wyoming, citing developments in the U.S., Brexit, Hong Kong, Italy and elsewhere. “Political shocks are turning into economic shocks.”
The annual retreat takes place against a tense global economic backdrop, with investors nervous about the risks of recession stemming from President Donald Trump’s escalating trade war with China.
U.S. stocks fell sharply on Friday after Trump threatened, and later delivered, higher tariffs on China. Lowe said that the public shouldn’t count on central bankers to bail them out if politicians keep turning up the heat.
“Monetary policy cannot deliver medium-term growth,” Lowe said. “We risk just pushing up asset prices.”
Lowe said that infrastructure investment and structural reform in economies around the world would have much greater impact than cutting interest rates. But politicians are reluctant to act, he said.
Ending the political uncertainty would also bring benefits, he said. “With these three levers stuck, the challenge we face is monetary policy is carrying too much of a burden.”
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