By Mirela Roman
While central bankers are stepping deeper into territory they have never tried before (negative IR, QE), markets and also the public want solid proof that they Walk the Talk.
The side effects of too strong promises — “whatever it takes” is now a commitment — and of their new arsenal, filled with double-edged, untested swords, have emerged: currency wars, stock market crashes and inflated expectations that fuel unrealistic hopes. Yes, the silver lining is they bought time, though not enough for some.
So what? What to do now?
Rejig the slogan “whatever it takes”? Guess it takes a more powerful phrase, which central bankers are still looking for. Meanwhile, their MP “masters”, too busy turning up the pressure and making central bankers more accountable and obedient and chasing their words and actions without having a clue or giving a damn about economics, continue to play tone-deaf to both markets and rational voices.
Close the gap, the divergence in policies? Dare to reverse the Fed’s symbolic, yet powerful, step as long as the European Central Bank enjoys less playground this time — a more different era, as heightened volatility, sometimes part of the defense toolkit, brings in fragility?
Not sure which path/choice will do.
To rephrase a senior commentator: Anything can go wrong for now, especially in Europe, as we are too fragile, too on the lower-bound and still confident central bankers will resolve everything for everybody, anytime and anywhere. Last but not least we are too haunted by the past (2007/8).
Maybe central bankers need to learn how to tackle the trap of somehow heartfelt promises, to deal with FEAR in a FRAGILE, different and swiftly CHANGING world.
Central bankers have changed a lot over the past decade, becoming more open to the idea that they need to adapt, to become more flexible and transparent before succeeding in shaping others to secure their objectives.
But today’s, not to mention tomorrow’s challenges, require enhanced abilities, more boldness and innovation, better timing and blending actions with some wiser words — maybe act first and talk later, though not too late and definitely in a more plain language.
As time goes by, learning more non-conventional skills may make central bankers fit for dealing with emotions, as well as they, or at least some of them, proved to be when it came to managing expectations. Practicing benevolence — this time not only for/with markets or bankers but also with the public, taking account of socio-psychological factors as well as the geography — may help. Yes, do take a ride in suburbia to gauge sentiment.
Trapped between a natural cycle of boom-bust, regulation-deregulation, high expectations and royal promises to ease the effects of such painful switches, I’m not sure that central bankers are ready, equipped and sometimes aware of the age of “an inner fear”, as one of the oldest emotion of humanity heats up…
No matter how limited their mandates or margins are, central bankers have a door open to some extra tools, the “soft power”: integrity, morality and wisdom. These are maybe the best weapons to tackle the inner fear — a symptom of unresolved inner conflicts. And yet, central bankers still enjoy a good reputation.
I have been cautioning for years: Mind the gap! The gap between what you say and if, when and how it materializes. It may be worth adding one other call now: Walk the Talk, or you may be walking into the trap.