Differing Views Of Central Banks And Markets

The volatility in equities and commodities thus far this year is not necessarily indicative of a change in the global economic outlook, Mark Carney, governor of the Bank of England, said Thursday (Jan. 21).

Carney made his assessment in an interview with The Wall Street Journal, conducted at the World Economic Forum. The governor said the global banking system is relatively well-capitalized compared to the way things were before the financial crisis that shook the years of 2007–2009. The result since then has been economic growth — slow to be sure, but growth nonetheless. “It is a pretty modest world,” Carney told WSJ. “Recent events are just reinforcing that. I don’t think they have fundamentally changed that trajectory … What has to be blended into that is the outlook for core advanced economies. European growth has broadened. It has broadened from Germany to Spain and to Italy. The transmission mechanism of monetary policy there has improved. The U.K. economy is still tracking quite well, and the underlying fundamentals are solid. This isn’t a debt-fueled recovery. People are consuming out of income. Consumer confidence is at the highest level in a decade, and investment confidence is right up there.” Earlier this month, Carney said that the U.K. should not embrace raising interest rates, despite the fact that the U.K. economy saw a slight deceleration of growth.

Separately, WSJ noted that a number of investors at the World Economic Forum in Davos, Switzerland, stated that central bank intervention in monetary and equity markets has overstayed its welcome. The mood, said WSJ, was “irritated, bordering on affronted.” The intervention, they said, has skewed asset prices, and the only way to “win” in the equity markets remains sitting on the sidelines. Cash remains king, some investors told WSJ, as equity prices are bound to fall.