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Editorial: Assess economic climate calmly to effectively carry out monetary policy

  • September 20, 2019
  • , The Japan News , 7:36 p.m.
  • English Press

U.S. monetary policies significantly affect the global economy. It is necessary to calmly assess economic conditions that are growing uncertain in their outlooks.


The U.S. Federal Reserve Board has decided on an additional interest rate cut. The Fed has lowered its policy interest rate by a quarter of a percentage point, the same margin as was implemented in July.


During a news conference, Fed Chairman Jerome Powell pointed out the weakness in capital investment and exports and acknowledged trade frictions have been putting a strain on corporate activities.


U.S.-China trade conflicts have become serious since August and it cannot be predicted how the issue of Britain’s exit from the European Union will turn out. Geopolitical risks over Iran have been increasing. It can be said that a sense of crisis over the future prospects of the world economy has led to the FRB’s decision on rate cuts.


Opinion was divided over the necessity of additional rate cuts. Among 17 participants in the Federal Open Market Committee session to decide on monetary policy, only seven forecast an additional rate cut before the end of this year.


U.S. interest rates are already at low levels. This provides an environment for businesses to be able to procure funds easily. It is no wonder the opinion has emerged that there will be little effect even if rate cuts continue.


Excessive monetary easing is feared to overheat an economy. More prudent policy steering is called for.


The speech and conduct of U.S. President Donald Trump is too much to tolerate. He has persistently pressed Powell to carry out drastic rate cuts and threatened to dismiss him. This time, Trump cursed at him, saying in a tweet: “Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision!”


Stay vigilant


Trump’s frustration likely increased over the fact that the FRB has acted against his will and the high dollar rate, which is disadvantageous to the U.S. export industry, has not been rectified.


The president is trying to undermine the credibility of the central bank that serves as “the watchdog of the currency.” This cannot be said to be a healthy situation. Trump should correct his attitude.


The Bank of Japan, for its part, has postponed additional monetary easing. The BOJ’s range of options is limited because it has continued large-scale monetary easing. Given a pause in the yen’s strengthening, the BOJ most likely held back on making its next move.


The important thing is to take effective steps at the appropriate time.


The BOJ is considering deeper interest rate cuts into negative territory, as the European Central Bank has done. But if rates are lowered further, it will possibly worsen the earnings of financial institutions even more. Monetary policy should be managed by paying attention to its effectiveness and any side effects.


Announcing its decision, the central bank said in a statement that “it is becoming necessary to pay closer attention.” This indicates the bank’s determination to take measures promptly if the public sentiment over an economic slowdown becomes stronger.


It is imperative for the BOJ to stay vigilant and prepare all possible steps.

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