Thread by @economistmeg

Here’s what really worries me about the main takeaway from the Jackson Hole Fed conference this year (a thread). In many ways, central bankers’ acceptance in Jackson Hole that they are largely impotent in the face of today’s challenges to growth is not surprising. 1/x

With rates already so low in most developed countries, borrowing costs have hardly been a constraint on activity. Acc to the NFIB survey, only 2% of small companies say they are having trouble with access to credit--even the small guys are having an easy time borrowing 2/x

There is therefore a real risk of central banks cutting rates and nothing much happening to inflation or growth (unless you count inflation of asset prices). 3/x

That not only means that central banks will have less room to cut when they really need it, but also that no one will believe in the efficacy of rate cuts anymore. Central bank credibility is at stake. ft.com/content/b5f4f9… 4/x

What worried me in Jackson Hole was the shrug shoulders and throw hands up in the air and say central banks don’t have the right tools to fight the impending (trade-driven) slowdown approach. 5/x

To be clear, I absolutely agree that central banks don’t currently have the right tools 6/x

But their solution seems to be to highlight that some fiscal stimulus would really help. And aside from China, I just don’t see this happening in a macroeconomically significant way in any major economy in the absence of a big crisis 7/x

There’s talk of a payroll tax cut in the US, but there’s little chance this will be passed in Congress. The Democrats would only back it if it were aimed at benefitting the middle class and involved tax hikes for the rich…a non-starter for the Republicans 8/x

Everyone is very excited about a German stimulus, but Germany is constrained by its own debt rules and probably won’t be galvanized to provide much stimulus until unemployment spikes significantly (economic recession is not enough) 9/x

If I’m right and a meaningful fiscal stimulus isn’t really in the offing, then why did we all just spend two days in Jackson Hole with some serious brain power focused on how nice it would be to have? 10/x

If Plan A (monetary stimulus) won’t work and Plan B (fiscal stimulus) might not happen, why aren’t we digging up a Plan C? 11/x

I don’t know what Plan C looks like, but maybe it involves developing new tools for the only actors who seem able to act these days (yep, still central banks)? 12/x

Just because central banks don’t have the right tools currently doesn’t mean they should stop trying to figure out how they can best respond to achieve their mandates. Using the same old tools as last time won’t work 13/x

I’ve taken a stab at one new idea here (dual interest rates, as introduced by the ECB with the TLTROs). ft.com/content/58a4af… I’d love to hear what other ideas are out there 14/end