Central Bank Inaction

No Powder Left to Shoot

draghi yellen david rubbs
How much cash have you got left? ECB President Mario Draghi and U.S. Fed Chair Janet Yellen.
  • Why it matters

    Why it matters

    China’s slowdown could provoke a global economic slowdown unless policymakers can find some way to stem the slide.

  • Facts


    • China’s central bank cut its key lending rate by 0.25 percent on Tuesday to 4.6 percent in response to the country’s economic slump.
    • The European Central Bank and U.S. Federal Reserve have already brought interest rates to near zero following the 2008 crisis.
    • Both the ECB and Fed have launched quantitative easing programs that have involved buying more than $1 trillion in bonds.
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It was back at the high-point of the euro-zone’s debt crisis in 2012 that Mario Draghi uttered his famous declaration: The European Central Bank would do “whatever it takes” within its power to keep the euro currency afloat.

The problem: With China’s latest slowdown feeding its way into the European economy, the ECB president has hardly any power left.

The Frankfurt-based central bank has used up pretty much all of its available resources to jump-start Europe’s economy. In March, through gritted teeth, the ECB launched a bond-buying program totaling more than €1.1 trillion and running until September 2016. The “quantitative easing” program is designed to push inflation in the 19-nation currency bloc back up to nearly 2 percent in the coming years.

But the crisis in China has highlighted exactly what the top-table central bankers had feared: An external shock to the system could yet bring the ECB’s inflation goals, as well as the shaky European economic recovery of this past year, crashing to a halt. It’s a fear to which the ECB and other central banks would have no response left.

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