• Central Bankers Under Stress
  • One Night in Buenos Aires
  • Brexit in Chaos
  • Many outdoor team sports begin with a kickoff that leads one team to find itself in possession of the ball deep in its own territory. At first, the ball can be advanced with little resistance. But after initial gains, threats begin coming from multiple directions. Reading the field becomes more difficult and second-guessing from commentators becomes more animated.

    Similarly, after being hailed for their actions during the 2008 financial crisis and their subsequent progress in normalizing financial conditions, monetary authorities are now encountering fierce resistance. Criticism is coming from multiple directions, and progress is becoming much more difficult.

    At some level, this was inevitable; policy is always less popular when it becomes more restrictive. But the politics surrounding monetary policy are thickening and will likely make 2019 an unpleasant year for central banks.

    We’ve come a long way since 2008. The United States is enjoying what is likely to become the longest economic expansion in its history, and growth in other world markets has been excellent over the past five years. This has allowed some central banks to roll back the exceptional accommodation that was applied to promote recovery after the crisis. Interest rates have been rising in America, Britain and Canada, while quantitative easing (QE) programs in the U.S. and the eurozone have been curtailed.

    The first tentative steps toward monetary normalcy were greeted as signs of progress. But more recently, disapproval of central bankers has been rising. The president of the United States recently said he was “not even a little bit happy” with his selection of Jerome Powell, the current head of the Federal Reserve. There is a long history of battles between the Fed and the White House, but the public nature and tone of the rebuke raised eyebrows.

    Mark Carney, the Governor of the Bank of England, has earned disapproval for increasing interest rates while issuing dire warnings about the potential consequences of Brexit. This week’s meeting of the Governing Council of the European Central Bank (ECB) concluded with the questioning of ECB president Mario Draghi over why QE is being capped amid a period of economic softness.

    Why have tributes turned into tribulations for central banks? There are four central reasons.

    1. Indebtedness. Leverage was kindling for the crisis, and in its aftermath, there were calls to reduce it. But global debt today is higher than it was in 2007. The composition of global debt has changed: households are generally better balanced, but governments have gone in the opposite direction. Rising interest rates and reduced central bank purchases of sovereign debt could make the fiscal equation more difficult to solve in many countries, leading to pressure from politicians for easy money.