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Westlake Legal Group > Draghi, Mario

E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat

FRANKFURT — The European Central Bank took unexpectedly aggressive steps on Thursday to head off a downturn before it gained momentum, but the bank signaled that it was reaching the limits of what it could do to stimulate the eurozone economy.

The central bank cut a key interest rate and revived a money-printing program, but later issued an unusually strong call for eurozone governments to do more of the economic heavy lifting.

Those countries that can afford it should stimulate growth by increasing public spending, Mario Draghi, the central bank president, said during a news conference.

Asked whether the message to political leaders was that they can’t expect the central bank to come to their rescue forever, Mr. Draghi answered: “Definitely yes.”

Mr. Draghi’s call for government action, which he said had the unanimous support of the bank’s 25-member Governing Council, was also an expression of unity with his soon-to-be-successor, Christine Lagarde. Ms. Lagarde, who will become the European Central Bank’s president in November, issued a similar plea when she spoke to members of the European Parliament last week.

For much of the last decade, the European Central Bank has prevented the eurozone economy from collapsing with an array of sometimes unprecedented crisis measures. But economic growth has almost stalled, and there is a growing consensus among analysts that wealthier countries like Germany or the Netherlands need to pump money into their economies, and by extension the rest of the eurozone, with tax cuts or public works projects.

Central banks are “not the only game in town,” Ms. Lagarde said at the European Parliament last week.

Read more: Central banks around the world are cutting rates to fend off recession.

The measures that the European Central Bank announced Thursday go beyond what many analysts were expecting. Recent comments by members of the Governing Council had cast doubt on whether the bank would restart purchases of government and corporate bonds. It has been only nine months since the bank ended a previous bond-buying program, an initiative that started in the midst of the financial crisis.

The bank will buy 20 billion euros’ worth of bonds, or $22 billion, every month starting in November, a form of money printing intended to inject money into the system and hold down interest rates.

In a bid to increase lending, the bank also pushed even lower the so-called negative interest rate it imposes on commercial banks that hoard cash.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a negative rate — essentially, a charge — on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent. It was the first cut in interest rates since 2016.

The deposit rate is one of the few remaining levers the bank can use to push down market interest rates. Its benchmark interest rate, the rate at which it lends to banks, is already at zero and cannot go any lower.

The move was symptomatic of the upside-down world of modern finance, in which interest rates are so low that insurance companies and other investors must pay governments and even some corporations to keep their money safe.

The central bank acknowledged Thursday that negative interest rates have some unwanted side effects and took steps to ease the pain. Some bank holdings will be exempt from the penalty, a practice known as tiering.

Despite Mr. Draghi’s plea for governments to do more, the idea of debt-financed spending, even on such favorable terms, is politically touchy in Germany. Germans are proud of their balanced budgets, and a constitutional amendment effectively forbids deficit spending.

ImageWestlake Legal Group merlin_160661526_6442e930-0759-41b6-83cb-6ca02a20d88d-articleLarge E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

Mario Draghi, the European Central Bank president, at a news conference after the meeting of the Governing Council in Frankfurt on Thursday.CreditRalph Orlowski/Reuters

With Germany on the brink of recession, weighed down by slumping exports caused by the United States-China trade war, some domestic leaders have begun to question that orthodoxy. “We should think about whether a break-even budget is the right path,” Wolfgang Tiefensee, economics minister of the state of Thuringia, said in an interview last month.

“We should use increased tax receipts to invest in infrastructure — bridges, streets, railways, broadband,” he said, “everywhere there is an urgent need to catch up.”

“Many people share this view,” Mr. Tiefensee added, “but not yet a majority.”

The European Central Bank also exceeded expectations by making an open-ended commitment to keep interest rates low, and sweetening a program that encourages banks to lend money to consumers and businesses.

The bank said it would not begin raising interest rates “until it has seen the inflation outlook robustly converge to a level” below but close to 2 percent, the official target. The annual rate of inflation in August was only half that much. The open-ended commitment was in contrast to previous statements when the bank outlined a specific time frame.

Further, the bank said it would ease the terms of a program that allows banks to borrow money on favorable terms, provided they lend it to customers. The loans will be extended to three years from two, and for banks that meet certain benchmarks the interest rate will be negative. In other words, banks won’t pay any interest and won’t have to repay all of the money they borrowed.

President Trump, who has been pressing the Federal Reserve to cut its benchmark rate, responded to Thursday’s move by needling his own central bank. The European bank, he said, is “trying, and succeeding, in depreciating the Euro against the VERY strong dollar, hurting U.S. exports … And the Fed sits, and sits, and sits.”

President Trump wants negative interest rates. Here’s how that would work.

The euro slipped against the dollar on Thursday, but Mr. Draghi rejected the idea that currency manipulation was behind the bank’s action.

“We have a mandate, we pursue price stability, and we don’t target exchange rates, period,” he said.

Some prominent economists say that it’s time for the European Central Bank to get more creative. The bank’s balance sheet already includes €2.6 trillion, or about $2.9 trillion, in government and corporate bonds. They were bought with newly created euros to inject money into the financial system and push down interest rates.

Analysts say that the bank has limited scope to buy more government bonds because it already owns such a big chunk of the market.

“As I see it, he has only about €60 billion of sovereigns he can buy,” Carl Weinberg, chief international economist at High Frequency Economics in White Plains, N.Y., said in an email. “That does not support sovereign bond purchases lasting for very long.”

Some economists have begun urging the bank to consider printing money and distributing it directly to citizens.

Among them is Stanley Fischer, former vice chairman of the Fed and Mr. Draghi’s thesis adviser when he was a doctoral student at M.I.T. Mr. Fischer was among the authors of a report published last month by the fund manager BlackRock.

“An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough,” the report said.

“That response will likely involve ‘going direct,’” the report said. “Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders.”

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be highly contentious. “Giving money to people in whatever form, it’s a fiscal policy task,” Mr. Draghi said Thursday. “It’s not a monetary policy task.”

He added, though, that Ms. Lagarde might reconsider the issue.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

E.C.B. Acts to Head Off Threat of Recession in Europe

Westlake Legal Group 12ecb-facebookJumbo E.C.B. Acts to Head Off Threat of Recession in Europe Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

FRANKFURT — The European Central Bank took steps on Thursday to stimulate the eurozone economy, moving to head off a downturn before the problem gathers momentum.

In a bid to increase lending, the bank increased the de facto penalty it imposes on commercial banks that hoard cash. The bank’s Governing Council also said it would begin another round of bond purchases, a form of stimulus known as quantitative easing. The bank will buy 20 billion euros’ worth of bonds every month starting in November.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a so-called negative interest rate on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent.

Analysts had expected an interest-rate cut Thursday, but there was considerable debate whether the bank would go further and restart purchases of government and corporate bonds. Mario Draghi, the president of the European Central Bank, has been signaling since June that measures to head off a recession would be necessary, absent an improvement in the economic outlook. Inflation has been stuck well below the official target of 2 percent.

Mr. Draghi, whose term ends in October, has faced growing criticism that easy-money policies and record low interest rates are fueling asset bubbles and undermining the profitability of commercial banks.

In response, on Thursday the central bank took steps to ease the pain of negative interest rates, saying that some bank holdings will be exempt from the penalty, a practice known as tiering.

Central banks around the world are cutting interest rates and trying to encourage borrowing as more and more indicators point to a global slowdown. Last week, the People’s Bank of China cut the amount of money that banks are required to keep in reserve, a step that will increase the amount available for lending and that will lead to lower interest rates. The Federal Reserve is expected to cut interest rates at its next meeting on Sept. 17-18 in Washington.

The European Central Bank’s action on Thursday amounted to a pre-emptive strike as economic indicators signal slowing growth in the 19 countries of the eurozone. Many analysts predict that Germany is about to slide into recession, dragging down the rest of the bloc. Trade wars and Britain’s chaotic attempt to leave the European Union have made business managers uncertain about the future and reluctant to invest in expanding factories or hiring new workers.

But the measures will also raise questions about what other options the central bank has if the eurozone economy continues to deteriorate.

The benchmark interest rate is already at zero, and the central bank’s balance sheet includes 2.6 trillion euros, or about $2.9 trillion, in government and corporate bonds purchased as part of a so-called quantitative easing program. The purchases are intended to drive down market interest rates by creating demand for government and corporate debt.

In December, the bank announced it would stop adding to its stock of bonds, though it has continued to reinvest the proceeds when bonds mature. Analysts say that the bank has limited scope to restart the quantitative easing program because it already owns such a big chunk of the market.

As a result, some economists have begun speculating that the central bank could consider more radical action, particularly if it looks like there is a danger of deflation. Some economists have begun urging the central bank to consider printing money and distributing it directly to citizens.

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be unprecedented and highly contentious. Nothing is likely to happen before Christine Lagarde replaces Mr. Draghi as president of the central bank at the beginning of November.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Central Bankers Want to Keep Economies Growing, but Politicians Hold the Keys

Westlake Legal Group merlin_159536490_d83e364e-a558-4428-a619-86b4975648e6-facebookJumbo Central Bankers Want to Keep Economies Growing, but Politicians Hold the Keys United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Interest Rates Federal Reserve System European Central Bank Economic Conditions and Trends Draghi, Mario Banking and Financial Institutions

JACKSON, Wyo. — As top economists from around the globe gather for their annual conference at Jackson Hole this week, they will have a collective hope in mind: that the world’s political leaders will work to help safeguard economic growth.

Economies from the United States to the European Union to China are slowing, presenting a challenge for central bankers, whose tools are limited at a time when interest rates remain historically low in much of the world.

In the United States and Britain, central bankers are hoping that trade uncertainty and political strife will not kill long economic expansions. And from Australia to Europe, economic policymakers have been urging politicians to step up their spending, hoping that a hand from the government will spur consumption and keep their economies from tipping into recession.

But there is a vast divide between technocrats trying to salvage waning global growth and politicians with an eye on their voting bases.

President Trump is locked in a trade war with China, with the latest round of tariffs scheduled to take hold on Sept. 1, and he shows no intention of backing down. American tariffs on European automobiles remain a possibility. Britain is negotiating its exit from the European Union and the likelihood of a no-deal departure, which could be economically punishing for the country and its major trading partners, has escalated with Boris Johnson’s ascendance to prime minister.

Complicating matters is Mr. Trump’s view that what is good economically for other countries is bad for the United States — a position that has led him to criticize efforts by central banks to keep their expansions on track. On Thursday, he once again needled the Federal Reserve Board over Germany’s low interest rates, suggesting that negative interest rates on German bonds were putting the United States at a disadvantage.

“Germany sells 30 year bonds offering negative yields,” Mr. Trump wrote on Twitter. “Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do. They put us at a disadvantage against our competition. Strong Dollar, No Inflation! They move like quicksand. Fight or go home!”

Global political brinkmanship is adding to uncertainty just as factories around the world slow production and businesses hold off on investment, stoking fears of a more concerted slowdown.

“Important countries are not in good shape,” said Roberto Perli, head of global monetary policy research at Cornerstone Macro, who said there was a risk of a significant and protracted global slowdown with the potential for outright recessions in some nations, like Germany. “It started for largely cyclical reasons, but since then, other factors have intervened — trade, most importantly.”

While central bankers strive to be politically independent and avoid giving elected leaders advice, they have acknowledged that government policies are threatening growth.

The Fed cut interest rates for the first time since the Great Recession in July, a move driven in part by Mr. Trump’s trade policies and partly by the broader slowdown in global growth. Jerome H. Powell, chair of the Federal Reserve, speaks on Friday and is expected suggest that additional rate cuts are on the table without signaling how many or giving a specific timeline. Tariffs — and their likely escalation — are keeping the Fed and its global counterparts on edge.

“We’re in a period when the center of gravity, the fulcrum, of U.S. economic policy is probably away from monetary policy and more in the area of trade policy, immigration policy” and other political areas, said Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview at the Jackson Lake Lodge.

Mr. Kaplan said that it is “prudent to take more time” before deciding whether or not the Fed should cut rates again in September. He does not vote on monetary policy this year, but has a seat at the table where rate decisions are made.

Asked if he expect additional rate cuts this year, he said that he is “open-minded that we may need to make further adjustments to the fed funds rate beyond what we did in July.”

But central bankers have begun warning that their ability to defend their economies is limited, especially because many never managed to sustainably lift interest rates back from rock bottom after cutting them during and after the global financial crisis.

Many are looking to their political leaders — who will gather in Biarritz, France, for the Group of 7 meeting this weekend — to help keep the world’s prosperity going.

“Policymakers around the world pulled the easiest lever, which is the monetary lever,” Mr. Perli said. “The more a central bank eases, the less powerful monetary policy becomes. We are at the point where, if we want to accomplish something — especially in countries like Europe — the ball is in the fiscal policy territory.”

But “that’s complicated,” he said, “by budget constraints in some countries and political constraints in other countries.”

While consumer spending is holding up in the United States and growth remains decent, manufacturing is slowing and consumer confidence sank in August. Businesses reported holding off on investment as they waited to see how the trade war plays out.

Mr. Trump has also begun mulling more tax cuts to lift the United States economy, though on Wednesday he insisted that it did not need one right now. And the Fed has room to cut rates, should a recession hit. The challenge is primarily one of intense policy uncertainty.

Europe, by contrast, has negative interest rates and a fraught economic backdrop — and while that owes more to fundamentals and global spillovers than domestic politics, growth is getting little help from national governments. In Germany, where China’s slowdown is hurting the manufacturing sector and the economy contracted in the second quarter, the government has been slow to spend more aggressively. Italy is also struggling, but it already has a heavy debt load, limiting its room to maneuver.

The European Central Bank, which runs monetary policy for 19 European countries, is expected to cut interest rates deeper into negative territory and even consider asset purchases in a bid to protect growth — but it is low on ammunition.

“Monetary policy has done a lot to support the euro area and continues, as you can see today, to do a lot,” Mario Draghi, the outgoing head of the central bank, said at a news conference last month. “But if we continue with this deteriorating outlook, fiscal policy will become of the essence.”

German politicians do seem to be cracking open the door to more spending, with Finance Minister Olaf Scholz indicating that the government could make up to $55 billion available. For scope, that is equivalent to a little more than 1 percent of Germany’s economy. The United States’ crisis-era spending package amounted to more than 5 percent of its 2009 gross domestic product, albeit with spending that was spread out over several years.

“This is the best available countercyclical tool in Europe,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, wrote in a research note. But he cautioned against expecting too much. “Politics will slow and could jeopardize the move to fiscal stimulus in Germany.”

Mr. Draghi will not make an appearance at the Wyoming meeting this year, though other European Central Bank leaders will be in attendance.

Like Mr. Powell, Mark Carney, governor of the Bank of England, is paying attention to politically created risks. He warned in a recent BBC interview that a no-deal Brexit would create an “instant” shock. The bank had been setting up for potential rate increases, but investors increasingly expect cuts instead as global growth wanes and trade tensions loom large.

In Australia, the central bank has cut rates to record-low levels as the economy weakens and threats to the nation’s 28-year-old expansion loom large. The threats include precarious household consumption, the broader slowdown in Asia.

Politicians in the nation have passed a tax cut and engaged in infrastructure spending, but they are nevertheless headed for what may be their first budget surplus in more than a decade, underlining the limits to that support. Philip Lowe, the head of the Australian central bank, who speaks on Saturday in Jackson, suggested this month that it would be economically helpful if politicians raised unemployment benefit spending, Bloomberg reported — a policy change that the sitting government opposes.

Economic action might be needed sooner rather than later: Recession signals have been flashing in American bond markets, Japan and South Korea are engaging in their own trade war, and consumer and business confidence have taken a hit in many parts of the world. While recession far from guaranteed, it is looking increasingly likely across a number of economies, including the United States.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Federal Reserve and Other Central Banks Constrained by Politics

Westlake Legal Group merlin_159536490_d83e364e-a558-4428-a619-86b4975648e6-facebookJumbo Federal Reserve and Other Central Banks Constrained by Politics United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Interest Rates Federal Reserve System European Central Bank Economic Conditions and Trends Draghi, Mario Banking and Financial Institutions

JACKSON, Wyo. — As top economists from around the globe gather for their annual conference at Jackson Hole this week, they will have a collective hope in mind: that the world’s political leaders will work to help safeguard economic growth.

Economies from the United States to the European Union to China are slowing, presenting a challenge for central bankers, whose tools are limited at a time when interest rates remain historically low in much of the world.

In the United States and Britain, central bankers are hoping that trade uncertainty and political strife will not kill long economic expansions. And from Australia to Europe, economic policymakers have been urging politicians to step up their spending, hoping that a hand from the government will spur consumption and keep their economies from tipping into recession.

But there is a vast divide between technocrats trying to salvage waning global growth and politicians with an eye on their voting bases.

President Trump is locked in a trade war with China, with the latest round of tariffs scheduled to take hold on Sept. 1, and he shows no intention of backing down. American tariffs on European automobiles remain a possibility. Britain is negotiating its exit from the European Union and the likelihood of a no-deal departure, which could be economically punishing for the country and its major trading partners, has escalated with Boris Johnson’s ascendance to prime minister.

Complicating matters is Mr. Trump’s view that what is good economically for other countries is bad for the United States — a position that has led him to criticize efforts by central banks to keep their expansions on track. On Thursday, he once again needled the Federal Reserve Board over Germany’s low interest rates, suggesting that negative interest rates on German bonds were putting the United States at a disadvantage.

“Germany sells 30 year bonds offering negative yields,” Mr. Trump wrote on Twitter. “Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do. They put us at a disadvantage against our competition. Strong Dollar, No Inflation! They move like quicksand. Fight or go home!”

Global political brinkmanship is adding to uncertainty just as factories around the world slow production and businesses hold off on investment, stoking fears of a more concerted slowdown.

“Important countries are not in good shape,” said Roberto Perli, head of global monetary policy research at Cornerstone Macro, who said there was a risk of a significant and protracted global slowdown with the potential for outright recessions in some nations, like Germany. “It started for largely cyclical reasons, but since then, other factors have intervened — trade, most importantly.”

While central bankers strive to be politically independent and avoid giving elected leaders advice, they have acknowledged that government policies are threatening growth.

The Fed cut interest rates for the first time since the Great Recession in July, a move driven in part by Mr. Trump’s trade policies and partly by the broader slowdown in global growth. Jerome H. Powell, chair of the Federal Reserve, speaks on Friday and is expected suggest that additional rate cuts are on the table without signaling how many or giving a specific timeline. Tariffs — and their likely escalation — are keeping the Fed and its global counterparts on edge.

“We’re in a period when the center of gravity, the fulcrum, of U.S. economic policy is probably away from monetary policy and more in the area of trade policy, immigration policy” and other political areas, said Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview at the Jackson Lake Lodge.

Mr. Kaplan said that it is “prudent to take more time” before deciding whether or not the Fed should cut rates again in September. He does not vote on monetary policy this year, but has a seat at the table where rate decisions are made.

Asked if he expect additional rate cuts this year, he said that he is “open-minded that we may need to make further adjustments to the fed funds rate beyond what we did in July.”

But central bankers have begun warning that their ability to defend their economies is limited, especially because many never managed to sustainably lift interest rates back from rock bottom after cutting them during and after the global financial crisis.

Many are looking to their political leaders — who will gather in Biarritz, France, for the Group of 7 meeting this weekend — to help keep the world’s prosperity going.

“Policymakers around the world pulled the easiest lever, which is the monetary lever,” Mr. Perli said. “The more a central bank eases, the less powerful monetary policy becomes. We are at the point where, if we want to accomplish something — especially in countries like Europe — the ball is in the fiscal policy territory.”

But “that’s complicated,” he said, “by budget constraints in some countries and political constraints in other countries.”

While consumer spending is holding up in the United States and growth remains decent, manufacturing is slowing and consumer confidence sank in August. Businesses reported holding off on investment as they waited to see how the trade war plays out.

Mr. Trump has also begun mulling more tax cuts to lift the United States economy, though on Wednesday he insisted that it did not need one right now. And the Fed has room to cut rates, should a recession hit. The challenge is primarily one of intense policy uncertainty.

Europe, by contrast, has negative interest rates and a fraught economic backdrop — and while that owes more to fundamentals and global spillovers than domestic politics, growth is getting little help from national governments. In Germany, where China’s slowdown is hurting the manufacturing sector and the economy contracted in the second quarter, the government has been slow to spend more aggressively. Italy is also struggling, but it already has a heavy debt load, limiting its room to maneuver.

The European Central Bank, which runs monetary policy for 19 European countries, is expected to cut interest rates deeper into negative territory and even consider asset purchases in a bid to protect growth — but it is low on ammunition.

“Monetary policy has done a lot to support the euro area and continues, as you can see today, to do a lot,” Mario Draghi, the outgoing head of the central bank, said at a news conference last month. “But if we continue with this deteriorating outlook, fiscal policy will become of the essence.”

German politicians do seem to be cracking open the door to more spending, with Finance Minister Olaf Scholz indicating that the government could make up to $55 billion available. For scope, that is equivalent to a little more than 1 percent of Germany’s economy. The United States’ crisis-era spending package amounted to more than 5 percent of its 2009 gross domestic product, albeit with spending that was spread out over several years.

“This is the best available countercyclical tool in Europe,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, wrote in a research note. But he cautioned against expecting too much. “Politics will slow and could jeopardize the move to fiscal stimulus in Germany.”

Mr. Draghi will not make an appearance at the Wyoming meeting this year, though other European Central Bank leaders will be in attendance.

Like Mr. Powell, Mark Carney, governor of the Bank of England, is paying attention to politically created risks. He warned in a recent BBC interview that a no-deal Brexit would create an “instant” shock. The bank had been setting up for potential rate increases, but investors increasingly expect cuts instead as global growth wanes and trade tensions loom large.

In Australia, the central bank has cut rates to record-low levels as the economy weakens and threats to the nation’s 28-year-old expansion loom large. The threats include precarious household consumption, the broader slowdown in Asia.

Politicians in the nation have passed a tax cut and engaged in infrastructure spending, but they are nevertheless headed for what may be their first budget surplus in more than a decade, underlining the limits to that support. Philip Lowe, the head of the Australian central bank, who speaks on Saturday in Jackson, suggested this month that it would be economically helpful if politicians raised unemployment benefit spending, Bloomberg reported — a policy change that the sitting government opposes.

Economic action might be needed sooner rather than later: Recession signals have been flashing in American bond markets, Japan and South Korea are engaging in their own trade war, and consumer and business confidence have taken a hit in many parts of the world. While recession far from guaranteed, it is looking increasingly likely across a number of economies, including the United States.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Christine Lagarde Faces a New Challenge in Europe

She doesn’t have the typical résumé — no doctorate in economics, no post as a central banker — for running the body that sets monetary policy for one-fifth of the global economy. But investors are betting that Christine Lagarde, the surprise nominee to be the next president of the European Central Bank, will act in much the same way as the bank’s last leader.

Interest rates fell to record lows in the days after she was named, a clear sign they expect her to follow her predecessor, Mario Draghi, and do “whatever it takes” to protect the euro and keep easy money flowing.

But the background of Ms. Lagarde, who is the respected managing director of the International Monetary Fund, has raised some questions, beyond the usual political intrigue, about her candidacy.

Ms. Lagarde, a lawyer, will take over at a time of economic uncertainty. Growth in the eurozone has slowed to a crawl, and central banks in the United States, Japan and Europe have largely exhausted their arsenals of stimulus measures.

The organization overseen by Ms. Lagarde warned as much on Thursday. “Even in the absence of a major shock,” the I.M.F. said in a report prepared before her nomination, “there is a danger that the area could enter a prolonged period of anemic growth and inflation.”

European finance ministers easily endorsed Ms. Lagarde last week. The European Parliament and the European Central Bank’s governing council will now weigh in, though neither has the power to block her from taking charge Nov. 1. Here is what they will be talking about.

ImageWestlake Legal Group merlin_150625443_9daaf910-aa24-4237-baeb-de41df76b622-articleLarge Christine Lagarde Faces a New Challenge in Europe Lagarde, Christine International Monetary Fund Inflation (Economics) Eurozone European Sovereign Debt Crisis (2010- ) European Central Bank Draghi, Mario

Philip Lane, the European Central Bank’s new chief economist.CreditClodagh Kilcoyne/Reuters

There is plenty of precedent for people without advanced economics degrees to run central banks. Jerome H. Powell, chair of the Federal Reserve, trained as a lawyer. So did Ms. Lagarde before entering politics as a minister in the French government. Jean-Claude Trichet, president of the European Central Bank before Mr. Draghi, studied economics but did not have a doctorate. He spent most of his career as a civil servant.

Both Mr. Powell and Mr. Trichet had central banking experience.

Ms. Lagarde’s most perilous moments, analysts say, will come when she cannot rely on a prepared text, like the news conferences that follow monetary policy meetings of the European Central Bank’s governing council. The sessions are broadcast live on the web, and financial markets react instantly to nuances in the bank president’s language. The president must display great finesse to avoid sending false signals. That has sometimes been a problem for Mr. Powell, despite his experience.

Ms. Lagarde may well commit a few gaffes as she finds her footing, said Edwin Truman, a fellow at the Peterson Institute for International Economics in Washington.

“That’s probably true of every person who rises to the level of central bank governor — there is a possibility to make a misstep,” Mr. Truman said. “She probably will need to learn a little bit of central bank speak.”

Ms. Lagarde at a conference in Paris last year.CreditYoan Valat/European Pressphoto Agency

Ms. Lagarde will become the European Central Bank’s president just as it is losing some of its finest economic minds.

Peter Praet, the chief economist, left in May after an eight-year term. Benoît Cœuré, a widely respected member of the bank’s executive board, will leave in December. And of course the bank will lose Mr. Draghi, who earned a doctorate in economics from the Massachusetts Institute of Technology. All have been pivotal in the bank’s efforts since 2011.

Philip Lane remains as the only hard-core economist among the six members of the executive board, which sets policy with the other 19 members of the governing council.

Mr. Lane, who was governor of the Central Bank of Ireland, has an enviable depth of practical and academic experience. He was previously a professor at Trinity College in Dublin, where he did groundbreaking research on how the movement of money across borders contributed to the 2008 financial crisis.

“It’s a reasonable assumption that she would rely a lot on the judgment of the chief economist and more experienced members of the E.C.B.,” said Ángel Talavera, an economist who follows the European Central Bank at Oxford Economics. The challenge, said two other economists who have observed her closely and asked not to be identified for fear of offending someone so powerful, is whether Ms. Lagarde has the economic know-how to recognize and challenge bad advice.

Mr. Trichet blundered in 2011, late in his term, when he raised interest rates, braking the economy even as the eurozone hurtled toward crisis. Jürgen Stark, the chief economist then and an inflation hard-liner, certainly influenced the decision. Mr. Draghi, who took office that year, quickly reversed the increases.

Ms. Lagarde’s supporters point out that she has spent eight years at the I.M.F. and certainly learned a lot. One of the I.M.F.’s main functions is to monitor the economic performance of member countries, and the fund played a crucial role in preventing the collapse of Greece during the eurozone debt crisis.

But the I.M.F. does not have nearly as much power as the European Central Bank to determine the course of the global economy.

“The core monetary policy part of it is really hard, and that’s where she’ll have to come up a very steep learning curve,” said Krishna Guha, head of the global policy and central bank strategy team at Evercore ISI, a firm that advises investment banks.

Ms. Lagarde took over the International Monetary Fund when it was “in disarray,” a former member of its executive board said.CreditFrancois Mori/Associated Press

Ms. Lagarde has a record as a strong manager.

She took over the I.M.F. when it was in crisis. Dominique Strauss-Kahn, her predecessor, was forced out in 2011 after being accused of sexually assaulting a housekeeper in a New York hotel. The charges were later dropped.

The I.M.F. “was in disarray,” said Douglas Rediker, who then represented the United States on the fund’s executive board. “One of the first things she did was restore the reputation, integrity and confidence of the I.M.F.,” said Mr. Rediker, now chairman of International Capital Strategies, a consulting firm.

Ms. Lagarde is known as a boss who scolds employees when they check their mobile phones during meetings. But she is also more informal than Mr. Draghi. During a visit to the European Central Bank in June, probably before she realized she could become president, she bantered easily with lower-level employees, according to a person who was present.

Ms. Lagarde once said she tried to do something for women every day, and can be expected to address gender imbalance at the central bank. Just two of the 25 members of the governing council are women.

Ms. Lagarde, who was the French finance minister before leading the I.M.F., may rely on her political skills to get eurozone governments to do more of the heavy lifting if there is another crisis, Mr. Rediker and others said.

That’s important because there is probably not that much more that the European Central Bank can do if the eurozone sinks into recession. Benchmark interest rates are at record lows. Countries like Germany that are in good financial shape could stimulate the eurozone economy by spending more on infrastructure. Eurozone leaders could agree on a common deposit insurance fund to strengthen the banking system.

“Everything in Europe, whether tacitly or overtly, has a political element to it,” Mr. Rediker said. “Christine Lagarde’s skills might be ideal for the E.C.B. at the current moment.”


Here’s a quick read on what they say:

Mr. Draghi, June 18, 2019:

In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.

Ms. Lagarde, April 2, 2019:

Monetary policy should remain accommodative where inflation is below target, and should anchor expectations. Exchange rate flexibility should be used, as needed, to help absorb shocks.

QUICK TAKE: Central banks should step in if inflation is weak.

Mr. Draghi, June 18, 2019:

Monetary policy can always achieve its objective alone, but especially in Europe, where public sectors are large, it can do so faster and with fewer side effects if fiscal policies are aligned with it.

Ms. Lagarde, Oct. 5, 2017:

Of course, monetary policy is most effective when complemented with sound fiscal policies that promote long-term, sustainable growth.

QUICK TAKE: Moves by the central bank are most effective when they work in tandem with government spending policies.

Mr. Draghi, April 12, 2019:

The Economic and Monetary Union needs to be strengthened, first and foremost by implementing what has already been agreed and finishing the common projects we have started: completing the banking union, strengthening the operational capacity of the European Stability Mechanism in full compliance with Union law, and making ambitious progress on the capital markets union.

Ms. Lagarde, March 28, 2019:

Going on 20 years, the time is ripe for the euro area to show new resolve and complete the banking and capital markets unions — so it can harvest the benefits now and in the future.

QUICK TAKE: Deeper integration of the eurozone’s financial sector will make it stronger.

Read more on E.C.B. Leadership
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Westlake Legal Group 02lagarde-1-threeByTwoSmallAt2X-v2 Christine Lagarde Faces a New Challenge in Europe Lagarde, Christine International Monetary Fund Inflation (Economics) Eurozone European Sovereign Debt Crisis (2010- ) European Central Bank Draghi, Mario
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Westlake Legal Group 00ecbexplainer-threeByTwoSmallAt2X-v5 Christine Lagarde Faces a New Challenge in Europe Lagarde, Christine International Monetary Fund Inflation (Economics) Eurozone European Sovereign Debt Crisis (2010- ) European Central Bank Draghi, Mario
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Christine Lagarde Must Learn to Run an Economy That’s Slowing to a Crawl

She doesn’t have the typical résumé — no doctorate in economics, no post as a central banker — for running the body that sets monetary policy for one-fifth of the global economy. But investors are betting that Christine Lagarde, the surprise nominee to be the next president of the European Central Bank, will act in much the same way as the bank’s last leader.

Interest rates fell to record lows in the days after she was named, a clear sign they expect her to follow her predecessor, Mario Draghi, and do “whatever it takes” to protect the euro and keep easy money flowing.

But the background of Ms. Lagarde, who is the respected managing director of the International Monetary Fund, has raised some questions, beyond the usual political intrigue, about her candidacy.

Ms. Lagarde, a lawyer, will take over at a time of economic uncertainty. Growth in the eurozone has slowed to a crawl, and central banks in the United States, Japan and Europe have largely exhausted their arsenals of stimulus measures.

The organization overseen by Ms. Lagarde warned as much on Thursday. “Even in the absence of a major shock,” the I.M.F. said in a report prepared before her nomination, “there is a danger that the area could enter a prolonged period of anemic growth and inflation.”

European finance ministers easily endorsed Ms. Lagarde last week. The European Parliament and the European Central Bank’s governing council will now weigh in, though neither has the power to block her from taking charge Nov. 1. Here is what they will be talking about.

ImageWestlake Legal Group merlin_150625443_9daaf910-aa24-4237-baeb-de41df76b622-articleLarge Christine Lagarde Must Learn to Run an Economy That’s Slowing to a Crawl Lagarde, Christine International Monetary Fund Inflation (Economics) Eurozone European Sovereign Debt Crisis (2010- ) European Central Bank Draghi, Mario

Philip Lane, the European Central Bank’s new chief economist.CreditClodagh Kilcoyne/Reuters

There is plenty of precedent for people without advanced economics degrees to run central banks. Jerome H. Powell, chair of the Federal Reserve, trained as a lawyer. So did Ms. Lagarde before entering politics as a minister in the French government. Jean-Claude Trichet, president of the European Central Bank before Mr. Draghi, studied economics but did not have a doctorate. He spent most of his career as a civil servant.

Both Mr. Powell and Mr. Trichet had central banking experience.

Ms. Lagarde’s most perilous moments, analysts say, will come when she cannot rely on a prepared text, like the news conferences that follow monetary policy meetings of the European Central Bank’s governing council. The sessions are broadcast live on the web, and financial markets react instantly to nuances in the bank president’s language. The president must display great finesse to avoid sending false signals. That has sometimes been a problem for Mr. Powell, despite his experience.

Ms. Lagarde may well commit a few gaffes as she finds her footing, said Edwin Truman, a fellow at the Peterson Institute for International Economics in Washington.

“That’s probably true of every person who rises to the level of central bank governor — there is a possibility to make a misstep,” Mr. Truman said. “She probably will need to learn a little bit of central bank speak.”

Ms. Lagarde at a conference in Paris last year.CreditYoan Valat/European Pressphoto Agency

Ms. Lagarde will become the European Central Bank’s president just as it is losing some of its finest economic minds.

Peter Praet, the chief economist, left in May after an eight-year term. Benoît Cœuré, a widely respected member of the bank’s executive board, will leave in December. And of course the bank will lose Mr. Draghi, who earned a doctorate in economics from the Massachusetts Institute of Technology. All have been pivotal in the bank’s efforts since 2011.

Philip Lane remains as the only hard-core economist among the six members of the executive board, which sets policy with the other 19 members of the governing council.

Mr. Lane, who was governor of the Central Bank of Ireland, has an enviable depth of practical and academic experience. He was previously a professor at Trinity College in Dublin, where he did groundbreaking research on how the movement of money across borders contributed to the 2008 financial crisis.

“It’s a reasonable assumption that she would rely a lot on the judgment of the chief economist and more experienced members of the E.C.B.,” said Ángel Talavera, an economist who follows the European Central Bank at Oxford Economics. The challenge, said two other economists who have observed her closely and asked not to be identified for fear of offending someone so powerful, is whether Ms. Lagarde has the economic know-how to recognize and challenge bad advice.

Mr. Trichet blundered in 2011, late in his term, when he raised interest rates, braking the economy even as the eurozone hurtled toward crisis. Jürgen Stark, the chief economist then and an inflation hard-liner, certainly influenced the decision. Mr. Draghi, who took office that year, quickly reversed the cuts.

Ms. Lagarde’s supporters point out that she has spent eight years at the I.M.F. and certainly learned a lot. One of the I.M.F.’s main functions is to monitor the economic performance of member countries, and the fund played a crucial role in preventing the collapse of Greece during the eurozone debt crisis.

But the I.M.F. does not have nearly as much power as the European Central Bank to determine the course of the global economy.

“The core monetary policy part of it is really hard, and that’s where she’ll have to come up a very steep learning curve,” said Krishna Guha, head of the global policy and central bank strategy team at Evercore ISI, a firm that advises investment banks.

Ms. Lagarde took over the International Monetary Fund when it was “in disarray,” a former member of its executive board said.CreditFrancois Mori/Associated Press

Ms. Lagarde has a record as a strong manager.

She took over the I.M.F. when it was in crisis. Dominique Strauss-Kahn, her predecessor, was forced out in 2011 after being accused of sexually assaulting a housekeeper in a New York hotel. The charges were later dropped.

The I.M.F. “was in disarray,” said Douglas Rediker, who then represented the United States on the fund’s executive board. “One of the first things she did was restore the reputation, integrity and confidence of the I.M.F.,” said Mr. Rediker, now chairman of International Capital Strategies, a consulting firm.

Ms. Lagarde is known as a boss who scolds employees when they check their mobile phones during meetings. But she is also more informal than Mr. Draghi. During a visit to the European Central Bank in June, probably before she realized she could become president, she bantered easily with lower-level employees, according to a person who was present.

Ms. Lagarde once said she tried to do something for women every day, and can be expected to address gender imbalance at the central bank. Just two of the 25 members of the governing council are women.

Ms. Lagarde, who was the French finance minister before leading the I.M.F., may rely on her political skills to get eurozone governments to do more of the heavy lifting if there is another crisis, Mr. Rediker and others said.

That’s important because there is probably not that much more that the European Central Bank can do if the eurozone sinks into recession. Benchmark interest rates are at record lows. Countries like Germany that are in good financial shape could stimulate the eurozone economy by spending more on infrastructure. Eurozone leaders could agree on a common deposit insurance fund to strengthen the banking system.

“Everything in Europe, whether tacitly or overtly, has a political element to it,” Mr. Rediker said. “Christine Lagarde’s skills might be ideal for the E.C.B. at the current moment.”


Here’s a quick read on what they say:

Mr. Draghi, June 18, 2019:

In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.

Ms. Lagarde, April 2, 2019:

Monetary policy should remain accommodative where inflation is below target, and should anchor expectations. Exchange rate flexibility should be used, as needed, to help absorb shocks.

QUICK TAKE: Central banks should step in if inflation is weak.

Mr. Draghi, June 18, 2019:

Monetary policy can always achieve its objective alone, but especially in Europe, where public sectors are large, it can do so faster and with fewer side effects if fiscal policies are aligned with it.

Ms. Lagarde, Oct. 5, 2017:

Of course, monetary policy is most effective when complemented with sound fiscal policies that promote long-term, sustainable growth.

QUICK TAKE: Moves by the central bank are most effective when they work in tandem with government spending policies.

Mr. Draghi, April 12, 2019:

The Economic and Monetary Union needs to be strengthened, first and foremost by implementing what has already been agreed and finishing the common projects we have started: completing the banking union, strengthening the operational capacity of the European Stability Mechanism in full compliance with Union law, and making ambitious progress on the capital markets union.

Ms. Lagarde, March 28, 2019:

Going on 20 years, the time is ripe for the euro area to show new resolve and complete the banking and capital markets unions — so it can harvest the benefits now and in the future.

QUICK TAKE: Deeper integration of the eurozone’s financial sector will make it stronger.

Read more on E.C.B. Leadership
In Tense Times, ‘Call in the Woman’: Lagarde Will Lead the E.C.B.

July 2, 2019

Westlake Legal Group 02lagarde-1-threeByTwoSmallAt2X-v2 Christine Lagarde Must Learn to Run an Economy That’s Slowing to a Crawl Lagarde, Christine International Monetary Fund Inflation (Economics) Eurozone European Sovereign Debt Crisis (2010- ) European Central Bank Draghi, Mario
Christine Lagarde Is Picked as E.C.B.’s New President. What Does the Bank Do?

July 2, 2019

Westlake Legal Group 00ecbexplainer-threeByTwoSmallAt2X-v5 Christine Lagarde Must Learn to Run an Economy That’s Slowing to a Crawl Lagarde, Christine International Monetary Fund Inflation (Economics) Eurozone European Sovereign Debt Crisis (2010- ) European Central Bank Draghi, Mario
Mario Draghi Saved the Euro. Will His Successor Be Equally Committed?

June 16, 2019

Westlake Legal Group 00ecb-1-threeByTwoSmallAt2X Christine Lagarde Must Learn to Run an Economy That’s Slowing to a Crawl Lagarde, Christine International Monetary Fund Inflation (Economics) Eurozone European Sovereign Debt Crisis (2010- ) European Central Bank Draghi, Mario

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Global Recession Risks Are Up, and Central Banks Aren’t Ready

Central bankers have a favorite mantra: Patch the roof while the sun is shining.

But 10 years after the Federal Reserve worked alongside the European Central Bank and the Bank of Japan to bring the global economy back from the brink, their ability to prevent the next downturn is limited.

Whether the world’s central banks are prepared to combat another slump is becoming less of a hypothetical question as the global economy shows signs of strain. The chances that the United States will enter a recession by next year have grown as manufacturing weakens and trade uncertainty drags on. In Germany, the unemployment rate has ticked higher, and industrial production is slowing. In Japan, weak factory production and waning exports heighten vulnerability.

A recession is far from inevitable — particularly one as deep and painful as the last. But the capacity for the type of decisive response that prevented an even worse outcome in 2008 has been hindered. Back then, central banks cut rates, bought up bonds, extended government backing to financial products, lent money to banks and in some cases coordinated with government authorities to make sure their rescue packages didn’t work at cross-purposes. It was an unprecedented period of experimentation, one that saved economies careening toward collapse.

But today, interest rates remain below zero in Japan and Europe. They are low by historical standards in the United States, leaving less room to cut in a downturn. Most central banks still hold huge amounts of the bonds and other securities they bought to prop up their economies the last time, which could make another buying binge more difficult and dampen its effects.

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Global leaders like Christine Lagarde, who was nominated to be the next leader of the European Central Bank, are urging central bankers to act decisively in case of a downturn.CreditJim Watson/Agence France-Presse — Getty Images

Monetary policy is also running low on credibility. Major central banks have failed to hit their 2 percent inflation targets during this expansion, heightening the risk that prices will slip dangerously low come the next downturn. And while promises of lower-for-longer interest rates have been a major source of stimulus in recent years, those pledges might lose some of their punch in a world where investors already expect permanently low rates.

Those constraints are especially worrying at a time when governments show little appetite for working together to offset a broad-based global slowdown. The United States and Europe are in the midst of a trade dispute that followed President Trump’s decision to impose tariffs on steel and aluminum and his threat to levy taxes on German and other European cars. Mr. Trump has criticized the European Central Bank for taking steps to protect the eurozone economy, accusing it of trying to weaken the euro and put America at a disadvantage.

Mr. Trump suggested last week that central banks were in something of an arms race, saying on Twitter that China and Europe were manipulating their currencies to gain an edge over the United States and that the Fed should start doing the same.

“We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games — as they have for many years!” he wrote.

Central bank officials insist that they are prepared to act aggressively if another recession flares. The E.C.B. stands prepared to stimulate the eurozone, and the Fed is signaling that it could soon cut interest rates to try to get ahead of mounting risks in the United States.

But economists across the globe say central banks can no longer be sole saviors the next time a downturn hits. That reality is colliding with political constraints in the United States and Europe, where lawmakers may prove unable — or unwilling — to quickly roll out expensive stimulus packages.

“Fiscal policy has a much more active role to play, and it is not yet equipped to do so,” Olivier Blanchard, a former International Monetary Fund chief economist, said last month at a central banking forum in Sintra, Portugal, specifically referring to Europe.

When it comes to monetary policy, “surely there is not enough room to respond to even a run-of-the-mill recession,” he said.

Christine Lagarde, who has been nominated to succeed Mario Draghi as head of the European Central Bank and currently heads the International Monetary Fund, has warned that central banks are likely to be the main line of defense given fiscal constraints.

“High public debt and low interest rates have left many countries with limited policy room for maneuver,” Ms. Lagarde said in a June blog post. She added that in a downturn, nations would need to use their economic tools together, with “decisive monetary easing and fiscal stimulus wherever possible.”

Global economic growth has crept back after a deep recession, and as recently as early 2018 a coordinated international expansion was underway. But progress has shown cracks in recent months, with trade flows slumping and manufacturing indexes pulling back from Asia to Europe.

The Morgan Stanley economist Chetan Ahya estimates that if Mr. Trump’s trade war with China isn’t resolved and the administration follows through with its threats to increase tariffs, growth could fall enough that “we could wind up in a global recession in about three quarters.” Risks seem to have abated slightly after the recent Group of 20 meeting, where Mr. Trump suspended a tariff escalation and restarted trade talks with China.

But uncertainties persist. Those talks could crumble again, leading to additional import taxes. And beyond America’s trade wars, the threat of a disorderly British withdrawal from the European Union and a continuing slowdown in China pose further risks to international activity.

Those factors prompted Mr. Draghi to strongly signal in June that the central bank was planning to revive stimulus measures it had used during the eurozone debt crisis.

While Mr. Draghi insisted the bank still had “considerable headroom” to buy bonds as a way of pumping money into the economy, some analysts think he acted pre-emptively precisely because he knows the central bank’s capacity is finite. Better to use the bank’s limited resources now when they can still do some good.

In the United States, the Fed is also considering acting sooner rather than later as it tries to judge whether a rate cut is warranted. Emerging research suggests that moving quickly and decisively might be the central bank’s best defense.

While the Fed is in comparatively good shape because it has gotten rates off rock bottom — they’re at 2.25 to 2.5 percent — that leaves it just half as much room to cut borrowing costs as policymakers had back in 2007. In fact, the Fed’s chair, Jerome H. Powell, has started a yearlong review of just what its options are.

“Having low interest rates really challenges the existing tool kits of central banks,” Mr. Powell said during remarks in New York last month.

Fed officials say they are prepared to revive large-scale bond-buying programs to stoke economic activity when the next downturn comes. The central bank is also contemplating new policy approaches that would leave rates lower for a longer period after a downturn. Recent research suggests such policies would have had benefits — though in some cases small ones — if applied after the 2008 recession.

Japan offers a cautionary example that mere willingness to act doesn’t guarantee success. Haruhiko Kuroda, head of the Bank of Japan, has pulled out all stops to reignite the country’s economy, cutting rates into negative territory and buying government debt and stocks in a bid to bolster markets and stoke confidence. The government has helped, spending readily to stimulate demand.

Despite all of that effort, inflation remains mired below Japan’s target, which is bad news since it increases the risk of outright deflation should growth weaken.

It is now unclear how much room Mr. Kuroda has for action should a deep downturn come, according to Makoto Hara, the author of a recent book on Japan’s central bank.

“Those taboo policies have become normal,” he said. “They’ve continued them until they became numb to them.”

Central banks in major economies are in their diminished positions largely because sustainable growth, inflation and interest rates have all fallen, trends that are attributable to long-running structural forces in the economy including aging populations and weakening productivity.

In the United States, the nonpartisan Congressional Budget Office sees gross domestic product increases leveling off near 2 percent. The International Monetary Fund estimates that output could drift lower in emerging markets and advanced economies alike.

That has coincided with fiscal restraint across the globe, as governments try to rein in spending and avoid further bloating debt levels.

American politicians restrained government spending after the 2008 recession, even when unemployment remained high and growth was tepid. Recent tax cuts and spending increases, ushered in by Republican lawmakers, have increased the federal debt, but there does not appear to be a broader embrace of deficit spending underway, particularly as the 2020 presidential election approaches.

America’s budget deficit is on track to surpass $1 trillion this year, and some lawmakers are already looking for ways to cut, not add to, federal spending.

Central bank leaders have increasingly warned that their firepower will be limited without help from fiscal authorities.

“Monetary policy will continue to do its job no matter what happens to fiscal capacity,” Mr. Draghi said, just a few days after European leaders largely failed to set up a mechanism to jointly provide stimulus when needed. But aid from governments “would do the same job faster and with less side effects.”

Mr. Powell echoed that sentiment last month. “It’s not good to have monetary policy be the main game in town, let alone the only game in town,” he said.

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Trump Accuses Europe of Bolstering Its Economy at America’s Expense

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WASHINGTON — To President Trump, economics has always been a zero-sum game: If another country is winning, the United States must be losing.

That view became clear on Tuesday, when Mr. Trump accused the European Central Bank of trying to prop up Europe’s economy and weaken its currency to gain a competitive edge over the United States.

Mr. Trump directed his criticism at Mario Draghi, the bank’s president, who said in a speech on Tuesday that “additional stimulus will be required” to help Europe withstand the economic challenges it faced, including mounting protectionist threats stemming from Mr. Trump’s trade war.

Those comments caused European financial markets to rally and the euro to decline sharply against the dollar.

Mr. Trump, in a series of tweets, accused Mr. Draghi of deliberately pushing down the value of the euro “making it unfairly easier for them to compete against the USA.”

“They have been getting away with this for years, along with China and others,” he tweeted.

Speaking to reporters at the White House later in the day, Mr. Trump said Mr. Draghi “did something today that was very dramatic. And, frankly, it helped that part of the world.”

Mr. Trump is viewing international economic policies through an increasingly narrow lens, observing only how decisions will affect the United States and seeing other countries’ attempts to help their economies as working against America’s interests. He has continually accused the Federal Reserve of putting the United States at a disadvantage to China, Europe and others by raising interest rates and has urged the central bank to take steps to strengthen the American economy, including cutting rates and restarting crisis-era stimulus programs.

On Tuesday afternoon, Mr. Trump suggested that he would consider demoting the Fed’s chairman, Jerome H. Powell, if the United States central bank did not also move toward easing policy. The Fed is expected to leave rates unchanged on Wednesday after a two-day policy meeting. But many economists expect Fed officials to signal that they are willing to cut rates soon if a slowing global economy and escalating trade tensions threaten the outlook for United States growth.

“We’ll see what happens; they’re going to be making an announcement pretty soon, so we’ll see what happens,” Mr. Trump said, when asked whether he would take the unprecedented step of trying to strip Mr. Powell of his chairmanship. “I want to be given a level playing field, and so far I haven’t been.”

Only a few months ago, central banks were putting the brakes on their fast-growing economies or, in the European Central Bank’s case, unwinding emergency measures put in place during the last crisis. But now the people who manage monetary policy are reversing direction in the face of new threats to growth, including Mr. Trump’s trade war, escalating tension between the United States and Iran and rising fears of recession.

Mr. Trump’s trade fights have escalated in recent weeks, magnifying the risk of a slowdown. He threatened tariffs on Mexican goods before calling them off and gave Japan and Europe six months to reach a trade agreement with the United States or face auto tariffs. After trade talks with China collapsed, Mr. Trump increased tariffs on $200 billion of Chinese goods and said he would tax an additional $300 billion worth if he and Chinese President Xi Jinping could not reach a deal. The two leaders are set to talk at a Group of 20 meeting later this month.

The effects of Mr. Trump’s trade war have hurt the European Union, particularly Germany, its largest economy. Trade anxiety has led to a decline in business sentiment and spending: Overall German industrial production contracted sharply in April, falling 1.9 percent on the month versus the 0.5 percent analysts expected.

Global growth stands to benefit if the European Central Bank’s promises avert a more severe slowdown, and the United States itself stands to gain if Mr. Draghi’s actions prevent broader economic pain across trading partners. But to a president who views globalization as a negative, those links are seen more as ways to hurt, not help, the United States.

For instance, Mr. Trump has begun equating currency movements with monetary policy. Currencies do move in response to central banks’ interest rate decisions, but that is generally not policymakers’ explicit goal. Officials target measures of economic growth, not the cost of the euro or dollar.

The president has fixated on what the euro and Chinese yuan are doing relative to the United States dollar — and how monetary policy at home and abroad fits in. He tweeted about the lack of a level playing field last year, and his trade adviser, Peter Navarro, has marshaled similar attacks on Germany for currency manipulation.

Viewing the European Central Bank’s posturing only in terms of how it will affect the value of the euro relative to the dollar overlooks monetary policy’s broader advantages.

The Fed and other global central banks guide their domestic economies by moving short-term interest rates and by buying bonds. Doing that without an eye toward exchange rate manipulation is critical in a globalized economy with free-floating currencies. It allows major nations keep economic activity operating at an even keel, without resulting in tit-for-tat currency battles that become a race to the bottom and risk ignoring other monetary policy goals, like controlling inflation.

For his part, Mr. Draghi denied that he was trying to give European companies an unfair advantage.

“We don’t target the exchange rate,” Mr. Draghi said, to applause from the economists and central bankers gathered at a golf resort in Sintra, Portugal, for the European Central Bank’s annual Forum on Central Banking.

Larry Kudlow, director of the National Economic Council, said he agreed with Mr. Trump’s concerns.

“He’s concerned that there is some certain beggar-thy-neighbor policies in the currency market,” he said Tuesday. “It sure would be better to have currency stability it seems to me rather than manipulating either for trade reasons or other macro reasons.”

The eurozone has been on the receiving end of Mr. Trump’s steel and aluminum tariffs, and its companies have also been caught in the cross-fire as the Trump administration ramps up tensions with China. Trade-sensitive factory gauges are weakening, particularly in Germany, and the president has threatened auto tariffs that would hurt German carmakers, casting a persistent dark cloud over the outlook.

Mr. Draghi had signaled earlier this month that the European Central Bank was becoming increasingly willing to revive stimulus measures used to combat a debt crisis that began in 2010. But in a panel discussion at the central banking forum Tuesday, he made it clear that his statements during a speech earlier in the day signaled a significant shift in response to a climate of pervasive economic uncertainty.

Mr. Draghi had previously indicated that the central bank would act if the economic situation worsened, but the reverse is now true: The central bank will act unless the situation gets better.

“This is exactly because of that lingering uncertainty that by itself is a materialization of risk,” Mr. Draghi said.

Mr. Draghi’s eight-year term will end in October, and later this week European leaders will meet in Brussels to discuss choosing his successor.

By effectively committing the central bank to action as soon as its next monetary policy meeting, on July 25, Mr. Draghi may have been reassuring financial markets that economic stimulus will linger long after he leaves office.

His words could be seen as a kind of pre-emptive strike in case his successor turns out to be a conservative like Jens Weidmann, a member of the Governing Council from Germany who is considered a leading candidate. Mr. Weidmann, who was in the audience Tuesday, is seen as being less willing to aggressively combat a slowdown.

In December, the European Central Bank stopped adding to its stock of government and corporate bonds, which it had bought in large quantities to push down market interest rates. But in March, as Mr. Trump’s trade war disrupted the global economy, officials showed signs of having second thoughts, and revived a program intended to encourage banks to lend more to businesses and consumers as a means to prevent a recession.

Mr. Draghi suggested Tuesday that the bank is ready to go much further, including adding to the 2.6 trillion euros, or $2.9 trillion, in government and corporate bonds that were acquired over several years as part of the so-called quantitative easing program. The bond buying is a form of money printing because the central bank makes the purchases with newly created euros.

The central bank’s benchmark interest rate is already zero, and cannot go any lower. However, Mr. Draghi said the bank could increase the so-called negative interest rate on commercial banks’ deposits at the central bank. The rate is currently minus 0.4 percent, and amounts to a penalty on the deposits and a way of nudging banks to put the money to work in the economy.

The Fed has not signaled it is prepared to go nearly as far as Europe might. Growth in the United States has moderated somewhat, but the economy remains strong. Mr. Powell indicated early this year that the Fed was pivoting away from steadily lifting interest rates, adopting a patient stance instead as markets wobbled and growth showed signs of weakening.

“We do not know how or when these issues will be resolved,” Mr. Powell said of trade spats, speaking earlier this month. “As always, we will act as appropriate to sustain the expansion.”

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As Recession Fears Grow in Europe, Central Bank Signals Stimulus Increase

Westlake Legal Group 18ecb-sub-facebookJumbo As Recession Fears Grow in Europe, Central Bank Signals Stimulus Increase Quantitative Easing International Trade and World Market Interest Rates Eurozone European Central Bank Draghi, Mario Banking and Financial Institutions

SINTRA, Portugal — A global shift back to easy-money policies reminiscent of the last financial crisis gathered force Tuesday after the European Central Bank signaled it was poised to step up its stimulus to the eurozone economy in response to international tensions and the trade war.

“Additional stimulus will be required” unless the stress on the eurozone economy eases, Mario Draghi, the central bank’s president, told an audience of economists. He added that the bank was prepared to use all the monetary policy weapons at its disposal, including de facto money printing, to forestall a recession.

It was Mr. Draghi’s strongest indication yet of concern about the global economy, and it came as the Federal Reserve’s policymaking committee began meeting in Washington amid expectations it could also resume cutting interest rates.

Mr. Draghi’s remarks brought a rebuke from President Trump, who accused the central bank president of manipulating currency rates. “They have been getting away with this for years, along with China and others,” the president tweeted.

Only a few months ago, central banks were putting the brakes on their fast-growing economies or, in the European Central Bank’s case, unwinding emergency measures put in place during the last crisis. But now, the policymakers who manage monetary policy are reversing direction in the face of new threats to growth, including Mr. Trump’s trade war, escalating tension between the United States and Iran and rising fear of recession.

The euro declined sharply against the dollar after Mr. Draghi’s speech. But he denied Mr. Trump’s accusation that he was deliberately trying to give European companies an unfair advantage. A weaker euro tends to make European cars, machine tools or wine less expensive for customers paying in dollars.

“We don’t target the exchange rate,” Mr. Draghi said, to applause from the economists and central bankers gathered at a golf resort here for the European Central Bank’s annual Forum on Central Banking.

Mr. Trump’s contention that the European Central Bank’s actions are unfair, and his consistent belief that the Federal Reserve should lower rates and weaken the dollar, underlines his views of the global economy as a winner-takes-all system in which other countries are cheating if they work at cross-purposes to his own agenda.

The Fed’s policymakers, whose meeting ends Wednesday, are expected to leave rates unchanged, but many economists predict they will signal that they are willing to cut rates soon if a slowing global economy and escalating trade tensions threaten the outlook for United States growth.

Mr. Trump has long fixated on what the euro and China’s currency are doing relative to the United States dollar — and how monetary policy at home and abroad fits in. He tweeted about the lack of a level playing field last year, and his adviser Peter Navarro made similar attacks on Germany for currency manipulation before that. Mr. Draghi has defended euro area monetary policy, saying that it reacts to economic fundamentals.

The Fed and other global central banks guide their domestic economies by moving short-term interest rates and by buying bonds. Those moves cause their national currencies to adjust, but policymakers rarely explicitly target such moves for fear of being labeled currency manipulators.

Such an approach is critical in a globalized economy with freely floating currencies. It is intended to allow major nations keep economic activity operating at an even keel, without resulting in tit-for-tat currency battles that become a race to the bottom and risk ignoring other monetary policy goals, like controlling inflation.

Mr. Draghi had signaled earlier this month that the European Central Bank was becoming increasingly willing to revive stimulus measures used to combat a debt crisis that began in 2010. But in a panel discussion at the central banking forum Tuesday, he made it clear that his statements during a speech earlier in the day signaled a significant shift in response to a climate of pervasive economic uncertainty.

Mr. Draghi had signaled previously that the central bank would act if the economic situation worsened, but now the reverse is true: The central bank will act unless the situation gets better.

“This is exactly because of that lingering uncertainty that by itself is a materialization of risk,” Mr. Draghi said.

Mr. Draghi’s eight-year term will end in October, and later this week European leaders will meet in Brussels to discuss choosing his successor.

By effectively committing the central bank to action as soon as its next monetary policy meeting, on July 25, Mr. Draghi may have been reassuring financial markets that economic stimulus will linger long after he leaves office.

His words could be seen as a kind of pre-emptive strike in case his successor turns out to be a conservative like Jens Weidmann, a member of the Governing Council from Germany who is considered a leading candidate. Mr. Weidmann, who was in the audience Tuesday, is seen as being less willing to aggressively combat a slowdown.

The remarks on Tuesday “may catch Draghi’s potential successor in a web of easing policies,” Bart Hordijk, an analyst at Monex Europe, a currency trading firm, said in a statement. “Even a more hawkish new E.C.B. president will have to take some time to untangle her/himself before further tightening can even be put on the agenda again.”

Mr. Draghi has not said publicly who he thinks should succeed him, but he indicated his opposition to Mr. Weidmann, with whom he has had a tense relationship.

Mr. Draghi implied Tuesday that Mr. Weidmann’s criticism of European Central Bank policy had helped fuel populism. In 2013, Mr. Weidmann, who is also president of the Bundesbank, the German central bank, testified at Germany’s constitutional court in support of euro opponents who had sued to block the bond-buying program.

Without mentioning Mr. Weidmann by name, Mr. Draghi said that whenever national central banks backed European Central Bank policies, they helped win popular acceptance for the stimulus measures. “Whenever this didn’t happen, you saw the opposite,” Mr. Draghi said during the panel discussion. “They actually stirred populism.”

In December, the European Central Bank stopped adding to its stock of government and corporate bonds, which it had bought in large quantities to push down market interest rates. But in March, as Mr. Trump’s trade war disrupted the global economy, the European Central Bank showed signs of having second thoughts, and revived a program intended to encourage banks to lend more to businesses and consumers as a means to prevent a recession.

Mr. Draghi suggested on Tuesday the bank was ready to go much further, including adding to the 2.6 trillion euros, or $2.9 trillion, in government and corporate bonds that were acquired over several years as part of the so-called quantitative easing program. The bond buying is a form of money printing because the central bank makes the purchases with newly created euros.

The central bank’s benchmark interest rate is already zero, and cannot go any lower. However, Mr. Draghi said the bank could increase the so-called negative interest rate on commercial banks’ deposits at the central bank. The rate is currently minus 0.4 percent, and amounts to a penalty on the deposits and a way of nudging banks to put the money to work in the economy.

The bank is determined to push chronically low inflation up to the official target, defined as below but close to 2 percent — the level considered optimal for growth, Mr. Draghi said. The central bank is even willing to overshoot the target if necessary, he said. Annual inflation in the eurozone was 1.2 percent in May.

“If we are to deliver that value of inflation in the medium term,” he said of the 2 percent target, “inflation has to be above that level at some time in the future.”

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