The West’s Punch Bowl Monetary Policy
Choosing a short-term boost to economic growth and employment, rather than enforcing price stability, wrecked the world economy in the 1970’s and 1980’s. The outcome may not be much different this time around if Western central banks maintain their current monetary policies for much longer.
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TILBURG – There are times for thinking and acting outside the box. And then there are times to return to normality. The West’s major central banks – the Bank of England, the European Central Bank, and the United States Federal Reserve – should take this to heart. As former Fed Chairman William McChesney Martin put it: “It’s the task of the central bank to take the punch bowl away when the party is still going.” Recently, however, the Fed decided not only to keep the punch bowl in place, but to refill it.