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Financial Titans Fear Central Bank Powers Near Limit: IMF Update

Michelle F. Davis and Enda Curran
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Financial Titans Fear Central Bank Powers Near Limit: IMF Update

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Financial industry chiefs are worrying about how much help central banks can offer if governments don’t step up with more help by unleashing more fiscal support, and that tweaking monetary policy isn’t enough anymore to stimulate economic growth as the benefits of lower rates have run out.

“They’re in a very difficult corner at the moment,” UBS Group AG Chairman Axel Weber said at a conference hosted by the Institute of International Finance in Washington. “Central banks are running out of the efficiency of their tools. Taking interest rates negative will not have the same impact” as lowering the old interest-rates lever.

Weber added that the acceptance of policy makers using their monetary tools is more challenged in the absence of fiscal policy coming in. “Central banks have maneuvered themselves into a difficult corner,” he said.

State Street Corp. Chief Executive Officer Ron O’Hanley took the same thought a step further, saying that monetary policy “just doesn’t work anymore on its own.”

Brian Porter, CEO of Scotiabank, said he’s concerned that many central bank policies, such as those that have led to trillions in negative-yielding debt, may have unintended consequences that haven’t been thought through because of a “hunger for yield.”

Former Fed, Treasury Officials Flag Flaws in MMT (1:30 p.m.)

Former Federal Reserve and U.S. Treasury officials endorsed the need for fiscal policy to reduce the burden on central banks -- but not with the type of government spending advocated by Modern Monetary Theory.

Stanley Fischer, former Fed vice chairman, said there’s a “kernel of truth” with MMT. However, the fundamental flaw is that printing more money while keeping inflation under control is a situation that can’t last forever.

“The coordination of fiscal and monetary policy is fine but MMT takes it way too far,” said Bill Dudley, the former New York Fed president now at Princeton University.

Stanford University Professor John Taylor, a monetary-policy scholar and former senior Treasury official, was more withering. He described MMT as neither modern nor monetary.

The former officials appeared together Saturday during a panel discussion at the IIF gathering.

Financial Titans Say Uncertainty Souring the Mood (10:36 a.m.)

Consumers are in good shape but manufacturers are not. Central banks are exhausted. Governments need to step up. Markets are being whipsawed by unprecedented noise.

That’s a sample of the mood among financial chief executives during a panel discussion at meetings of the IIF meeting in Washington.

A central theme was that strong consumer spending and rising wages are being offset by wrenching uncertainty for factories due to the world’s tilt toward protectionism. That may mean governments will have to coordinate a fiscal stimulus to head off a deeper downturn.

Good news in some pockets, such as consumption, and a never-ending flow of negative signals elsewhere is proving too much for investors to handle, said Philipp Rickenbacher, CEO of Julius Baer Group Ltd. “At this stage there is just too much noise,” he said.

The finance chiefs met on the sidelines of the International Monetary Fund meetings where the mood among officials has been similar. The IMF lowered its global growth projections this week and now expects the slowest expansion in a decade. The finance chiefs didn’t disagree.

“Our clients are preparing for rougher times ahead,” said Olaug Svarva, board chair of DNB.

IMF Delays Decision on Giving China Bigger Voice

The IMF said Friday that it delayed until as late as 2023 possible changes that would give China a greater say in the crisis lender’s governance.

The fund’s top committee of finance ministers and central bankers also said it would consider a doubling of the IMF’s crisis-era credit line, known as the New Arrangements to Borrow. That facility was cut by half in 2016.

U.S. Treasury Secretary Steven Mnuchin said in a statement Friday that the nation -- which holds the largest voting share in the fund -- welcomes the “work under way to reach agreement on a broad package of IMF resources,” including the quota review and proposed doubling of the New Arrangements to Borrow.

In 2015, U.S. lawmakers approved the last round of changes that allowed China to become the third-largest voter in the IMF, up from sixth. India and Brazil also moved higher. A new round of changes could give China an even greater say because the shares are supposed to reflect the size of a country’s economy.

To contact the reporters on this story: Michelle F. Davis in Washington at mdavis194@bloomberg.net;Enda Curran in Washington at ecurran8@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Sarah McGregor, Scott Lanman

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