How central banks should prepare for the next recession

IT HAS BEEN a decade since America’s latest recession, and it has taken that long for the Federal Reserve to ask itself whether it is ready for the next one. On June 4th officials and scholars will gather in Chicago to debate how monetary policy should work in a world of low interest rates. The benchmark rate is 2.25-2.5%, which gives the Fed little room to cut before hitting zero—and less than half as much as it has needed in past downturns. As if to remind policymakers that rock-bottom rates are here to stay, the ten-year Treasury yield fell below 2.3% this week. Other central banks, many of which preside over still lower rates and weaker economies, are looking to the Fed for inspiration.

The belated battle-planning, although welcome, is awkwardly timed. Central banking is becoming more politicised. President Donald Trump has called for the Fed to cut rates and tried unsuccessfully to appoint two of his cronies to its board. Left-wingers are increasingly interested in taking charge of monetary policy. In Britain they have suggested, variously, that the Bank of England should cap house-price growth and target productivity—as if the rate of technological change were a monetary phenomenon. Central banks are often eyed as a source of cash for infrastructure investment or for fighting climate change. The European Central Bank’s quantitative easing (QE), bond-buying with newly created money, is a source of tension between euro-zone countries, helping make the ECB’s leadership race even more political than usual.