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OMFIF Bulletin December 2016



Central banks are under fire, not for the typical reason of high interest rates, but because of low ones. Following the expected US rate rise in mid-December – only the second formal Federal Reserve credit tightening in 10 years – the heat is not likely to die down, points out Darrell Delamaide. OMFIF’s November edition was dedicated to an international shift to tighter monetary and looser fiscal policy – now apparent after the election of Donald Trump. The December Bulletin focuses on another turning tide: greater constraints on central bank independence.

Central banks are guided not just by statute and practice, but by the power of personality. As David Marsh notes, governments will have an unusual opportunity to stamp their mark on monetary decision-making. In the next three years, governors of the top six worldwide central banks – the Fed, People’s Bank of China, Bank of Japan, European Central Bank, Bank of England, and Germany’s Bundesbank – reach the end of their terms and may be replaced by new faces.

Trump’s criticism of Fed Chair Janet Yellen has generated headlines even before he moves into the White House. Reginald Dale, Brian Reading and John Kornblum, reflect on Trump’s victory and the nature of the presidential campaign.

Andrew Large, former deputy governor of the Bank of England, investigates the problem of central banks’ enlarged mandates. Øystein Olsen, governor of Norges Bank, explains the complications for central banks stemming from lack of support in other policy areas. Mojmir Hampl, deputy governor of the Czech National Bank, discusses how central banks must explain their changing roles to the public. Focus on weakening the exchange rate raises the risk of currency wars, warns Linda Yueh.

Click here to read the press release.