The New York Times: Global Recession Risks Are Up, and Central Banks Are Not Ready

Article by Jeanna Smialek, Jack Ewing and Ben Dooley in The New York Times

Central bankers have a favorite mantra: Patch the roof while the sun is shining.

But 10 years after the Federal Reserve worked alongside the European Central Bank and the Bank of Japan to bring the global economy back from the brink, their ability to prevent the next downturn is limited. Whether the world’s central banks are prepared to combat another slump is becoming less of a hypothetical question as the global economy shows signs of strain.

The chances that the United States will enter a recession by next year have grown as manufacturing weakens and trade uncertainty drags on.

The capacity for the type of decisive response that prevented an even worse outcome in 2008 has been hindered. Back then, central banks cut rates, bought up bonds, extended government backing to financial products, lent money to banks and in some cases coordinated with government authorities to make sure their rescue packages didn’t work at cross-purposes. It was an unprecedented period of experimentation, one that saved economies careening toward collapse.

But today, interest rates remain below zero in Japan and Europe. They are low by historical standards in the United States, leaving less room to cut in a downturn. Most central banks still hold huge amounts of the bonds and other securities they bought to prop up their economies the last time, which could make another buying binge more difficult and dampen its effects.

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