It is easy to find people on Wall Street who believe that the aggressive monetary policies of central banks, particularly the US Federal Reserve’s quantitative easing, are destabilising the economy. In some quarters, as my colleagues Dan McCrum and Robin Harding have reported, this suspicion has been elevated to a self-evident truth. But it is wrong.
Central banks, including the Fed, are doing the right thing. If they had not acted as they have over the past six years, we would surely have suffered a second Great Depression. Avoiding such a meltdown and then helping economies recover is the job of central banks. My criticism, albeit more of the European Central Bank than of the Fed, is not that they have done too much, but that they have done too little. This does not mean that policies central banks have adopted are either riskless or costless. They are not. It does mean that they were the least bad option.
What is more, the fact that yields on bonds of highly rated sovereigns have risen recently is surely a sign of success. What seems to be happening is the rebirth of some confidence in the economy, particularly in the US. This is encouraging investors to expect an earlier exit from QE and other forms of expansionary monetary policy than was foreseen a few weeks ago.