Central bankers, a group of largely independent technocrats, wield more power over the fates of politicians, investors and regular folk than ever before. In the absence of government action, they are bearing most of the burden of supporting economic recoveries in the U.S. and Europe. With their bond purchases and other unconventional policies, they have become a major force holding up financial markets around the world.
Hence, when they gather for their annual meeting in Jackson Hole, Wyoming -- as they will starting Friday -- it's worth paying attention. I see at least three issues that they need to address, the resolutions of which are crucial to the well-being of both current and future generations:
- What can be done to put more people back to work? Long-term unemployment and youth joblessness remain big problems throughout the developed world, threatening to aggravate inequality (of income, wealth and opportunity) and permanently impair the ability of economies to grow and raise living standards. Some question whether the U.S. Federal Reserve can persist in its efforts to reduce unemployment without fueling inflation and financial instability. This will be the topic of Fed Chair Janet Yellen's keynote speech.
- How much power do central banks really have? Most people still have faith in the ability of central banks to engineer a transition from policy-induced to genuine growth, despite the fact that outcomes have repeatedly fallen short of expectations. Yet there is a growing school of thought -- including that related to the secular stagnation hypothesis -- suggesting that central banks may not be able to get the economy growing at the desired pace without precipitating future financial crises. Given the extent to which policy dysfunction undermines a comprehensive policy response, this is perhaps one of the most important economic policy questions facing our societies today.
- What is the global impact of central bank policies? After a long period in which the world's largest central banks were all pushing in the same direction, they're now reaching the point where their policies will diverge. The Bank of England and the Fed are in the process of taking their foot off the stimulus pedal. The European Central Bank and the Bank of Japan will be going the other way. This multispeed world of increasingly contrasting policies could have big effects on markets and people far beyond the U.S., Europe and Japan. Jackson Hole offers a rare opportunity for central bankers to consider the international consequences in a direct and frank manner.
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