World's central bankers try new steps to spur growth
That focus has shifted. Inflation, if not dead, is badly battered in the industrial world. Japan suffers from deflation. Some other nations, including the United States and Germany, wonder if slow growth could also bring a pattern of falling prices.
So most of the world's key central banks are now trying to push their economies out of the doldrums. Though they lower interest rates for domestic economic reasons, their actions have become synchronized, like a high-kicking chorus line.
"It's a global phenomenon," says James Glassman, an economist with J.P. Morgan Securities Inc., in New York.
In the US, the Federal Reserve is expected to announce its 13th successive interest-rate cut Wednesday. Wall Street wonders whether it will be half or one-quarter a percentage point. If it's half, the federal funds rate that banks charge on overnight loans will fall to 0.75 percent.
The action is seen as "an insurance policy" in case an anticipated upturn in business activity doesn't happen.
Ten days ago, the Swiss National Bank's chairman, Jean-Pierre Roth, talked of an unusual step for a central bank. Facing recession, only 0.6 percent inflation, and near-zero interest rates, he said the bank will not hesitate to buy bonds, if necessary, to ease monetary policy further.
Earlier this month, the European Central Bank, the institution setting monetary policy for 12 European nations, lowered its key interest rate by 0.5 percentage to a record low of 2 percent. It hinted it will soon cut that rate even further.
The Bank of Japan finds its monetary toolbox for fixing a slump practically empty. Interest rates are at zero - actually below zero in real terms because of declining prices. So earlier this month the bank's new governor, Toshihiko Fukui, announced the bank will test a new tool - buying junk-grade corporate debt - in an attempt to restart economic growth.
The bank's problem is that the money it has given private banks at essentially no cost is just piling up in reserves and not being loaned to business or consumers.
Mr. Glassman lists a bunch of other nations whose central banks have already cut interest rates this year or are likely to do so later in 2003 - Canada, South Korea, Chile, Britain, Sweden, Norway, the Czech Republic, and Australia. Brazil cut last week.
"This trend is something to respect," Glassman says. "That is what the financial markets are telling you."
Despite rough patches, prices in most major stock markets have been bustling.
The US economy is again expected to lead the way to renewed world prosperity. Beside an easy monetary policy, the US economy should get a lift from the latest federal tax cut.
Economists with Goldman Sachs & Co., an investment bank in New York, estimate the tax cut will pump $70 billion into the economy in 2003 and $50 billion in 2004.
But because the package's heftiest provisions benefit primarily higher-income taxpayers, the economic kick may not be as great as it would have been if the tax relief went more to lower-income people, they add. The rich are less inclined to spend extra money than the middle-class or the poor.
The great hope for the world economy is that the economies of Japan and the European Union will start to sizzle again.
Japan, wanting to keep its exports competitive, has been propping up the US dollar with huge purchases on the foreign-exchange market. In May alone, it bought $42.8 billion.
In economic theory, buying dollars should ease monetary policy further in Japan - unless the Bank of Japan took other measures in domestic financial markets, such as selling government bonds, to negate the action.
In any case, moves by several Asian nations to bolster exports by keeping their currencies cheap bothers competing US firms, including the Big Three automakers. Some 80 trade groups have formed the Coalition for a Sound Dollar to lobby Congress and the administration to tackle "currency manipulation." And US Treasury Secretary John Snow did suggest last week that China let its yuan appreciate.
To manage the price of its currencies, Japan has built up foreign-currency reserves of $524 billion. China piled up $316 billion, South Korea $128 billion, and Taiwan $175 billion.
Frank Vargo, an economist with the National Association of Manufacturers, a coalition member, sees this manipulation as a significant factor in the loss of 2.8 million jobs by US manufacturers since the late 1990s. It's unfair competition, he holds.
The policy quandary is that revaluation of the Asian currencies, though helping the US, might slow Asia's economies.