Top Central Bankers Defend Stimulus Efforts

By Tom FairlessFeaturesDow Jones Newswires

The leaders of four major central banks on Tuesday defended their sweeping stimulus policies and discussed how words themselves have become a vital tool to guide advanced economies out of the financial-crisis era.

The rare joint appearance in Frankfurt by the heads of the Federal Reserve, European Central Bank, Bank of Japan and Bank of England comes as several of their governors prepare to step down, notably Fed Chairwoman Janet Yellen in February.

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They shared a common willingness to pull out all the stops and experiment with unorthodox policies to stimulate their economies and worked closely together at times.

All four have faced political criticism for their actions, which have been unprecedented in both scale and scope.

ECB chief Mario Draghi, who has been dogged by criticism from German officials, hit back on Tuesday, arguing that his critics had faced too little scrutiny.

"It's a minority which has shielded itself from international scrutiny," Mr. Draghi said. German officials have warned that the ECB's ultralow interest rates hurt German savers and pensioners.

As they sought to stem the financial crisis, central banks have made mistakes. Perhaps the biggest misstep was the so-called "taper tantrum" in the U.S., when market interest rates rose sharply in 2013 after former Fed Chairman Ben Bernanke indicated that the central bank's bond-buying program might be wound down.

Ms. Yellen said that market reaction "simply couldn't be understood in terms of the path of our balance sheet."

"What caused the taper tantrum was [that] the timing and character of the communications was unexpected," leading to a significant shift in investor expectations of future interest rates, she said.

The Fed has learned from that episode, she added. When it recently started shrinking its balance sheet, it presaged the move with a series of statements about its intentions, pledging that the process would be orderly and gradual.

Bank of England Gov. Mark Carney has faced criticism for warning that Britain's departure from the European Union could have a negative impact on the economy, which was seen by some U.K. politicians as a political intervention. Mr. Carney repeated his call on Tuesday for a "reasonable transition period" that could cushion the economic impact of Brexit.

All four central bankers could be gone within two years, raising questions for investors about whether their successors will take a similar no-holds-barred approach--and whether they are still able to do so.

Write to Tom Fairless at

(END) Dow Jones Newswires

November 14, 2017 08:19 ET (13:19 GMT)