-Central banks in different countries can usefully share analysis and may adopt similar policies in response to common global shocks, but explicit coordination would likely do more harm than good, Federal Reserve Vice Chair Richard Clarida said on Friday.
“Adopting formal global monetary policy cooperation could plausibly erode central bank credibility and public support for central bank independence,” he said in remarks prepared for delivery to the 2021 Asia Economic Policy Conference.
Clarida did not use his speech to directly address the key question of the day – whether the Fed should respond to high inflation by raising interest rates faster than it has suggested it will, and as Fed Governor Christopher Waller urged it do in a separate event on Friday.
But his views may give some insight into his thinking and the Fed’s on how the U.S. central bank may position its policy given that other central banks, including the Bank of England, are signaling they will soon raise rates.
To each central bank his own, was Clarida’s message – though sometimes, they will act in what looks like a coordinated manner simply because they are experiencing similar pressures.
Each central bank has a slightly different mandate, so even defining joint goals would be difficult, he said.
And even if shared targets could be agreed, he noted, “central banks would have a hard time maintaining credibility and independence as well as communicating a policy that raised home interest rates aggressively not because home inflation is too high but because foreign inflation is!”
Clarida also noted that central banks are not immune to each other’s policies – and that not only do U.S. policy changes affect foreign economies, but equally monetary policy shifts in other countries can affect the U.S. economy and even force a Fed response.
By way of example, he pointed to China’s currency devaluation in 2015 and the delay it caused to the Fed’s plans to raise rates then.
(Reporting by Ann SaphirEditing by Chizu Nomiyama)
