Troubling Taper Talk from Central Banks

July 5, 2013

With the way central bankers have been behaving over the past month, you would think global inflation is picking up, economies are booming and financial bubbles are inflating further. Nothing could be further from the truth. Central banks all over the world ought to leave well enough alone rather than raising already-elevated uncertainty with talk of phasing down ("tapering," in U.S. parlance) quantitative easing, says John H. Makin, a resident scholar at the American Enterprise Institute.

Key points in Makin's study:

  • Federal Reserve Chairman Ben Bernanke's recent vague comments on tapering of quantitative easing sent U.S. and global markets into a panic, demonstrating the danger of premature monetary austerity.
  • Rising market interest rates combined with falling inflation could lead to a rise in real interest rates that may harm economic recovery in the United States and other major economies such as China, Japan and Europe.
  • With the world's major economies stagnating or in outright recession and emerging economies such as Turkey and Brazil also struggling, central banks should leave well enough alone rather than risk another global recession.

Source: John H. Makin, "Troubling Taper Talk from Central Banks," American Enterprise Institute, June 26, 2013.

 

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