Dimon, Cohn Say Global Monetary Policy Becoming Less Effective

(Bloomberg) -- The world’s central banks are trying to reignite the global economy with tools that have lost their effectiveness, and fiscal policy is failing to make up the difference, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said.

“I just don’t think the system is functioning the same and I think the monetary authorities are trying to figure out what these things do,” Dimon, 60, said Friday at the Institute of International Finance’s annual meeting in Washington. “Nor do I think the systems are coordinated. Fiscal policy and monetary policy -- if we got those things right I think we would have extra growth.”

The U.S. central bank left its benchmark rate unchanged last month as it waits for more evidence of progress on inflation and employment, though policy makers signaled an increase is still likely by year-end. The European Central Bank also kept its rates and pace of bond purchases unchanged as it gave its technical committees a “full mandate” to propose redesigns for quantitative-easing, programs that boost the money supply through unconventional measures.

“QE1 kind of worked, QE2 worked less, QE3 may not work,” Dimon said. “A little bit is pushing on a string -- no corporation is going to build a new plant because rates are low.”

‘Ineffective Cartel’

Goldman Sachs Group Inc. President Gary Cohn called the world’s central banks an “ineffective cartel” that’s causing global growth to stagnate.

“We no longer have independent countries with independent central banks that can drive economic growth or contract economic growth within their own countries,” Cohn, 56, said earlier at the same conference. “We have a globalized world with a globalized work force and we therefore have a globalized monetary policy.”

The International Monetary Fund this week kept its estimates for worldwide growth unchanged from July and said rising political tensions over globalization are threatening to derail a recovery. The global economy will expand 3.1 percent this year before accelerating 3.4 percent in 2017, while the U.S. economy, the world’s biggest, will grow 1.6 percent this year, down 0.6 percentage point from July’s estimate, the IMF said.

Dimon and Cohn aren’t disinterested parties. Banks typically make more money when interest rates rise as the gap widens between how much they charge borrowers and pay depositors. Bank shares have climbed this year on days when speculation increases that the Fed is closer to boosting rates.

Days before last month’s Fed meeting, Dimon encouraged the central bank to “just raise rates.”

--With assistance from Yalman Onaran To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net, Sangwon Yoon in New York at syoon32@bloomberg.net. To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Steve Dickson