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A surprise departure from the European Central Bank could highlight the treacherous road ahead for the world’s monetary policymakers.
It’s not clear exactly why Sabine Lautenschläger, Germany’s representative on the central bank’s executive board, recently opted to resign. (Her term would have run until 2022.)
But the announcement that she was stepping down followed the central bank’s high-profile decision to push interest rates further into negative territory and to restart its bond-buying program, a policy Lautenschläger has publicly criticized.
One takeaway: In a world of sluggish growth, stubbornly low inflation and fears of an economic downturn, there may be more room for doves than for hawks. Markets and companies are hooked on cheap borrowing. Meanwhile, central banks’ ability to guide stable inflation and provide efficient stimulus is increasingly in question.
“They’ve shown they’re still limited in bringing inflation up to the targets,” said Ángel Talavera, head of European economics at Oxford Economics.
This could cause headaches for Christine Lagarde, who takes the reins from ECB President Mario Draghi on November 1.
On the heels of Draghi’s big announcement this month that the bank would indefinitely print money to buy financial assets, Lagarde will face early pressure to stay the course, though some at the central bank disagree with the move.
“The level of dissent within the [ECB] is almost unprecedented,” Talavera said.
On the other side of the equation is growing discussions about whether central banks should pursue even more unconventional monetary policy.
Deutsche Bank said in a recent report that it believes “helicopter money,” a term that refers to extraordinary monetary policies that can spur spending (including giving cash directly to households), “could be highly effective if properly deployed.” The bank points out that when interest rates are low but savings rates are high, fiscal policy — or monetary policy that bl