Avoiding a slowdown (Central banks fighting a battle against global economic slowdown)

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 Avoiding a slowdown (Central banks fighting a battle against global economic slowdown)

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• Trump verus the central bank : Recently, the US Federal Reserve has been sending signals that it is not closed to the idea of helping the economy if there's something to be gained from it. Trump's constant criticism of Fed's rising rates has impacted it finally.
• The dynamic : The American economy has been slowing down, and inflation is not high (below target of 2%). Jobs growth has slowed down, and GDP growth is expected to be muted. In the past one year, the Federal Reserve raised rates regularly, and many now blame it for the slowdown!  (Why? Slow offtake of credit)
• From hawkish to dovish : Chairman Jerome Powell sounded conciliatory when he said "there's no hurry to raise rates". 2019 marks the 10th anniversary of the 2009 bull market, created by the rate cuts to fight recession.
• Normalisation of monetary policy can wait : It is not just the US Fed, but other Central Banks too, who have put brakes on normalisation of monetary policy (through gradual tightening of short-term interest rates). Examples - European Central Bank (ECB), People's Bank of China (PBOC), RBI etc.
• Conditions in Europe and Asia : These central banks are openly promising help (through low rates or stimulus measures) as growth is showing deterioration.
• A coordinated effort : Thus, this is clearly a coordinated global effort to avoid a global slowdown. It starts with the US Fed - once it applies brakes on raising rates, other central banks too can lower their rates and boost growth. Why? No disruptive capital outflows (to the US) wreaking havoc on local economies.
• The only risk : Prolonged periods of low rates can lead to renewed asset bubbles building.
• Summary : Leading Central Banks worldwide, including the US Fed, have changed direction from hawkish to dovish, indicating a coordinated effort to not let a deteriorating economic condition worsen.

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