The Decline of Monetary Policy

This year has proved to be pivotal for the global economy’s continuing recovery from the great recession. The world’s largest central banks have newfound optimism towards recent global growth, leading to the dissolution of, what seemed, the perpetual reign of low interest rates and quantitative easing. Since the beginning of 2017, the U.S. Federal Reserve (“the Fed”) has increased interest rates twice and the European Central Bank (“ECB”) has signalled a desire to slow the rate of its bond-buying program. Concurrently, investors have developed extreme optimism towards the global economy, promoting equity markets to reach all-time high valuations.

The global economy is finally in a new era, one of optimism and economic growth. However, can monetary policy itself ever fully recover? After nine years of remedying stagnant growth and volatile markets, central banks are left with cumbersome balance sheets and deteriorated interest rates. The severely weakened strength and abilities of monetary policy will render developed countries’ central banks incapable of providing the economic stability it was once revered for maintaining.