Central Banks Synchronize Cuts
Kurt Brouwer October 8th, 2008
In a very rare show of international coordination and cooperation, several central banks led by the the Federal Reserve lowered short-term interest rates. Bloomberg has the story [emphasis added]:
Fed, ECB, Central Banks Cut Rates In Coordinated Move (Bloomberg, October 8, 2008, Scott Lanman)
The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression.
The Fed, ECB, Bank of England, Bank of Canada and Sweden’s Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn’t participate in the move, said it supported the action. Switzerland also took part. Separately, China’s central bank lowered its key one-year lending rate by 0.27 percentage point.
…The Fed reduced its benchmark rate to 1.5 percent. The ECB’s main rate is now 3.75 percent; Canada’s fell to 2.5 percent; the U.K.’s rate dropped to 4.5 percent; and Sweden’s rate declined to 4.25 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.
…”The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,” according to a joint statement by the central banks. “Some easing of global monetary conditions is therefore warranted.”
It should be clear that getting so many central banks to cooperate is difficult. Yet, already the quibbling has begun (it should have been 1%; what about Japan and so on).
Though we do not need to fret about this now, I also hope the Feds do not keep rates low for very long — at most a year or so — because low rates were maintained far too long after the 2001 recession and the attacks of 9-11. Those low rates helped fuel the frenzy of leverage that is only now being unwound.
Eventually, the wheels of financial commerce will creak and groan and begin turning again. When they do get going, the Fed needs to take action and return us to a more normal interest rate environment.
- Economy , Geopolitics , Money
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