The worrisome signals of global economic recession risks, which are becoming more and more persistent, leave central bank governors blank, with their room for maneuver shrinking as the US trade war escalates. United and China and growing geopolitical tensions.
Concerns arose on August 14, when the US borrowing rate curve briefly reversed. Thus, the interest rate for 10-year loans has fallen below the interest rate for two-year loans.
This has been interpreted as a harbinger of a recession in the coming months, as it shows that investors no longer have confidence in the future: they seek security by subscribing long-term treasury bills, which makes lower the rate of return.
To make matters worse, the trade war between the world's largest economies intensified further on August 23, when China announced plans to levy retaliatory tariffs on US $ 75 billion worth of additional goods.
President Donald Trump quickly fought back with tariffs of 25% to 30% from October 1st, on 250 billion dollars of Chinese goods.
The growing uncertainty about trade policy adds to a growing list of geopolitical tensions, including protests in Hong Kong, Britain's threat to leave the European Union on October 31, a political crisis in Italy that could shake the euro, conflicts between Japan and South Korea and the crisis in Kashmir.
It was in this gloomy juncture that last weekend's Jackson Hole Economic Symposium in the Wyomong was held, an annual gathering of Federal Reserve officials and central bank governors to discuss policy. monetary.
Indeed, with already low borrowing costs, the Federal Reserve and other central banks have less leeway to reduce rates and stimulate growth.
The tone was given immediately by Fed Chairman Jerome Powell, who maintained the possibility of future interest rate cuts, while stressing that the central bank was limited in its ability to thwart President Donald Trump's trade policies, which fuel uncertainties and pose risks to the economic outlook.
"If monetary policy is a powerful tool that supports consumer spending, business investment and public trust, it can not provide well-established rules for international trade," he said.
Powell, who has been severely criticized by Donald Trump for his monetary policy, has responded to the US President by pointing to the uncertainty generated by his trade war with Beijing.
The apprehension for this unprecedented situation was reiterated by other central bankers who made it clear that President Trump's unpredictable policy was the biggest threat to the global economy.
"I have never seen the world so synchronized and so globally frightened by something that had not already happened in the beginning," said New Zealand central bank director Adrian Orr, quoted by the Wall. Street Journal.
For Mark Carney, Governor of the Bank of England, the scale of the trade war was already shaking global investment in industry and business.
"We are experiencing a series of major political shocks," said Reserve Bank Governor Philip Lowe at the closing session of the symposium, adding that "these political shocks turn into shocks. economic. "
As for Dallas Fed President Robert Kaplan, he warned that central bank tools are not well suited to tackle the political causes of the economic downturn. "Monetary policy probably was not creating the slowdown and it probably could not, by itself, stop this slowdown if it were to intensify," he said.
The Fed lowered its key rate last month to a range of between 2% and 2.25%. The quarter-point cut is the first in more than a decade. One of the concerns is that after decades of monetary stimulus, lower rates may support asset prices but will not dispel the uncertainty that holds back investments.
Concerns about Washington's increasingly unpredictable role in international finance have also fueled discussions about the dollar's status as a global reserve currency following Trump's growing pressure to lower its value to boost exports, a topic hitherto taboo among monetary decision makers.
In this regard, many central bank officials were left speechless in the face of Mr Trump's growing attack on Mr Powell, whom the President had chosen to serve a four-year term starting last year. Disappointed by the fact that Powell did not announce strong action during his opening remarks at the symposium, Trump hinted on Twitter that the head of the Fed was an enemy of the state.
But it seems that the leaders of the G7, meeting 8000 km away in Biarritz, France, have of course the dilemma of monetary leaders, President Trump having announced a resumption of trade negotiations with China "very soon".
And hope for the lull has strengthened after the announcement by the two powers on Thursday the resumption of discussions, something that has been well received by the financial centers at the head of Wall Street, including the leading index, Dow Jones climbed more than 0.4% on Friday.
LNT with MAP