5 things central bankers aren’t telling you

Inflation isn’t much of a concern for Carney or Bernanke these days. So what is keeping them up at night?

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From the November 2012 issue of the magazine.

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Young couple at desk meeting with businessman
1. We aren’t worried about inflation. Normally this is a top concern for Bank of Canada governor Mark Carney and U.S. Federal Reserve chairman Ben Bernanke, but “it’s off the radar,” says BMO Capital Markets economist Michael Gregory. The belief is that because the economy, particularly in the U.S., isn’t running at full capacity, the risk of inflation spiralling out of control is the least of their worries.

2. We may raise rates just to remind you they can go up. When the Bank of Canada says “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate,” what they are really saying is that they are not going to cut rates. It’s also telling Canadians to be forewarned: rates can go up, and the BoC could raise them occasionally just to prove it, notes Gregory.

3. The BoC is more worried about the economy than it lets on. The housing sector is fading and the government sector is in retreat, leaving the business sector to provide all the growth, says Capital Economics’ David Madani. Now they’re worried about a sudden drop in home prices. It’s not like the BoC can cut rates to prop prices up if things go south, Madani says.

4. We’ve got your back. The U.S. Federal Reserve has already dished out two stimulus programs and is now on to a third one, Gregory reminds us. The Fed is saying, “You may worry about the fiscal cliff, the crisis in Europe and slowing China, but don’t worry about monetary policy. We’ve got your back. You can have confidence growth won’t stall, and we’re going to throw the kitchen sink at it to prove it.”

5. We’re making it up as we go. Central banks are in a bit of a bind, says Madani. “We are in a highly experimental world right now.” Central banks have never been in this position before. Normally they would inject life in the economy by cutting rates but that hasn’t been enough, so they keep trying new measures to see what works.

2 comments on “5 things central bankers aren’t telling you

  1. All great info. The housing market is so up in the air, it will be interesting to see what happens. I really hope interest rates don't rise, since I have some OSAP and student loans to pay off yet!

    Reply

  2. 6. We are terrified of the impending outcome of the fiscal cliff and we can only hope that the United States makes the right decisions for the long term
    7. The housing market in Canada is severely overvalued and will look for a long term steady correction of 2-5% annually for the next five years starting in 2013
    http://www.ingeniousinvesting.com

    Reply

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