Meet the Central Banker Who Might Never Raise Rates

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Philip Lowe could become Australia’s first central bank governor in the modern era to never raise rates. That’s more than a tidbit to tuck away for trivia night: We’re looking at a new template for monetary policy makers world-wide in the aftermath of Covid-19.

On Tuesday, Lowe said the Reserve Bank of Australia is unlikely to raise its benchmark interest rate until 2024 at the earliest. That would punt a prospective increase beyond the expiration of his seven-year term in 2023. Technically, Lowe’s tenure can be extended by the government, but even then, any rate increase is years away. For good measure, the RBA extended its quantitative easing program, too. 

Despite improving forecasts for economic growth and signals that unemployment has peaked, inflation just isn’t firing. The challenge Lowe faces isn’t unique. From Europe and the U.S. to Japan and South Korea, central bankers are scanning the skies for signs that the huge stimulus deployed in 2020 and gradual reopenings of economies will juice price increases to problematic levels. Far from being the scourge it was when many officials were building their careers, though, inflation is almost something to be welcomed. Federal Reserve Chair Jerome Powell noted last week that major economies have fallen short of their targets — generally in the vicinity of 2% — for some years, and that the forces constraining price increases haven’t gone away. 

That leaves us with an unsettling proposition: What if there is no real exit from easy money for the rest of our professional lives? Given the almost unrelenting global march down in borrowing costs over the past few decades, this applies to Zillennials and Boomers alike. In principle, sustained easing would further inflate asset prices, including housing, stocks and some commodities. Already, there are complaints that the well-heeled haven’t had much of a Covid-19 slump, which has only amplified lingering discontent that it was the rich who got bailed out during the global financial crisis.

With their once principal preoccupation impossible to satisfy, central bankers are now emphasizing other tasks, such as ensuring the health of labor markets. Few things are as political as people’s ability to find and keep work. The longer ultra-easing stays in place, the more monetary authorities determine how much governments can borrow and for what price. They’re in the political arena whether they like it or not. 

Does that make them poor custodians of the global economy? No. They are simply dealing with the convergence of decadeslong trends while grappling with a pandemic. They have gone where the evidence takes them, rather than heed ideology. An out-of-reach inflation target does little good when you’ve got millions of people unemployed at your doorstep.

Small wonder, then, that Mario Draghi, who sat at the helm of the European Central Bank for eight years, is now Italy’s new prime minister. If ever you need an adult in the room, make sure to keep your neighborhood central banker on standby. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

©2021 Bloomberg L.P.

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