A former Governor of the Bank of England has warned that central banks cannot be relied upon to solve most of society’s problems.
Writing for Bloomberg, Mervyn King said there are “serious challenges for our societies. But the seriousness of a problem is not the only, or even the most important, criterion for central bank intervention. Some societal problems deserve a monetary response. Most don’t.
He also warned that central banks are taking a huge risk by increasing the degree of influence they wield over political matters.
Central banks risk losing their independence if they assert themselves as a vehicle for implementing political agendas, he warned. Issues such as climate change and racial justice are beyond the purview of central banks, King said.
“Amid widespread frustration at the inability of elected policymakers to address the critical issues of the day, influential voices – including politicians, business leaders and the general public – have increasingly called on the banks central banks to step in. Central banks have become “the only game in town,” King wrote for Bloomberg.
The warning comes as the world’s best and brightest central bankers prepare to meet at the annual Jackson Hole Monetary Policy Symposium this week.
Federal Reserve Chairman Jerome Powell will deliver a speech on Friday outlining the central bank’s expectations for the trajectory of the US economy in the coming months.
Analysts expect him to describe how the Fed will begin to curb the wave of monetary stimulus it has unleashed in response to the Covid crisis.
Some fear that the ultra-accommodative stance maintained by the Fed may exacerbate inflationary pressures in the US economy.
Inflation is currently 5.4% per year in the United States, more than double the Fed’s 2% target.