Jun 11, 2019

The return of quantitative easing

Bank of Japan Governor Haruhiko Kuroda at the G20 finance ministers' and central bank governors' meeting in Japan. Photo: Eugene Hoshiko/AFP/Getty Images

After pulling back from what was expected to be the year for global central bank policy tightening in January, policymakers are now giving markets a clear signal that they intend to start cutting interest rates, pouring stimulus on the economy. But analysts are skeptical the same song and dance will work this time.

What's happening: The Fed has signaled it will likely cut this year, while central bankers in Australia, New Zealand and India already have cut rates to historic lows with markets expecting more.

The intrigue: In places like the eurozone and Japan, where interest rates are already below 0%, central bank heads may have to get creative in order to stimulate their slumping economies.

What they're saying:

  • ECB vice president Luis de Guindos, in remarks from Madrid: "We remain alert in the wake of mounting global uncertainties. The Governing Council is, therefore, determined to act in case of adverse contingencies and also stands ready to adjust all of its instruments."
  • BOJ governor Haruhiko Kuroda told Bloomberg: "If the momentum to our 2% inflation target is lost, then of course, the Bank of Japan will swiftly respond by changing our policy."

What it means: During the financial crisis, central bankers used the extraordinary policies of QE to offset a potential depression scenario.

  • As a result, today the central bank policy toolkit is looking quite barren and market watchers are skeptical they will be able to make much difference in the event of a downturn.

"Stimulus looks like chimera," Danielle DiMartino Booth, CEO of research firm Quill Intelligence, tells Axios in an email. "Stimulus has hit a wall of diminishing returns as a consequence of policymakers never having the courage to normalize [interest rates]."

  • In spite of the elevated stimulus already undertaken by China, the U.S. and Europe in the form of government spending and monetary easing and unprecedented share buybacks by American companies, global growth is still slowing significantly, Booth says. "It's no wonder policymakers are making a coordinated effort to ease."

"Kuroda and de Guindos are whistling past the graveyard," Joseph Trevisani, senior analyst at FXStreet, tells Axios. "When a recession comes they may buy bonds and push rates further into negative territory, largely because they are supposed to do something, but it will have very limited effect on their economies."

Go deeper: Fed gives first sign it may cut interest rates

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The cost of going after Bloomberg

Illustration: Eniola Odetunde/Axios

Here's the growing dilemma for 2020 Democrats vying for a one-on-one showdown with frontrunner Bernie Sanders: Do they have the guts — and the money — to first stop Mike Bloomberg?

Why it matters: Joe Biden, Pete Buttigieg, Amy Klobuchar and Elizabeth Warren all must weigh the costs of punching Bloomberg where he looks most vulnerable: stop-and-frisk, charges of sexism, billionaire entitlement. The more zealous the attacks, the greater the risk he turns his campaign ATM against them.

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Average economic growth under President Trump has outpaced the growth under Barack Obama, but not all of his recent predecessors.

Why it matters: GDP is the most comprehensive economic scorecard — and something presidents, especially Trump, use as an example of success. And it's especially relevant since Trump is running for re-election on his economic record.

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Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's NHC; Note: China refers to mainland China and the Diamond Princess is the cruise ship offshore Yokohama, Japan. Map: Danielle Alberti/Axios

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The big picture: COVID-19 has now killed at least 1,770 people and infected almost 70,000 others. Most cases and all but five of the deaths have occurred in mainland China. Taiwan confirmed its first death on Sunday, per multiple reports, in a 61-year-old man with underlying health conditions. Health officials were investigating how he became ill.

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