The politicisation of central banks

Growing hope for even cheaper money and a further decline in central bank interest rates is apparent in the capital market. It has been evident again for some time now that bond yields are falling and risk-bearing assets, such as equities and corporate bonds, are increasing.

With the appointment of Christine Lagarde as successor to ECB president Mario Draghi, we can expect a loose monetary policy to continue even after the Draghi era comes to an end. With Ms Lagarde, a lawyer is now taking the helm at the ECB, as is already the case with the US Federal Reserve. The politicisation of central banks is therefore being consistently pursued. This development does not come as any great surprise: thanks to the central banks’ willingness to act even in the extreme areas of monetary policy, central bank policy has become very relevant for the governments. It remains to been seen how monetary policy management tools will be prioritised in the future. However, political considerations will also play an important role in case of doubt.

This is all happening against the background of noticeably easing economic momentum and high political stress for the global economic system. The central banks will have to continue expanding monetary policy stimulus over time in order to achieve the desired effects. This is likely to lead to exaggerations and bubble formation in parts of the financial market; the consequences of such a development are well documented. In the end, economic reality has prevailed up to now.

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