It was the best of times, it was the worst of times. Dickens’ immortal line roughly sums up the differing actions of two of the world’s major central banks this week. In the US, the Federal Reserve looked at a stable and growing economy more vibrant than most around the globe and with very few domestic risks: they decided to cut interest rates. Back at home, the Bank of England foresaw a sluggish and shaky economy with looming dangers and a 33% chance of recession: they decided to leave interest rates unchanged.
It appears that up is down, black is white and central banks have decided to rewrite decades of monetary wisdom. Well, not quite. The different approaches of the Fed and the BoE reflect the very different purview that policymakers are taking. The Fed has much more room to manoeuvre than the BoE, with their benchmark funds rate some 1.5% above the BoE’s, even after the latest cut. And the Fed has come to believe that their remit extends much further than that of the BoE: it is effectively the world’s central bank. Their statement and subsequent press conference acknowledged as much. They remain the elephant. Meanwhile the BoE has moved from centre-stage, in the mid-2000s, to the periphery of Europe. The old lady of Threadneedle Street is not ageing well.