Global Slide Pushes Central Banks

Policy makers from China to Europe are pressed to act to shore up the economy.

Monetary policy makers from around the world are being pressed into action to shore up a global economy that is suffering its steepest slowdown since the recession ended in 2009.

On the heels of a June 5 interest-rate cut by Australia, China yesterday unveiled its first reduction in borrowing costs in more than three years to counter what Premier Wen Jiabao has called increasing downward economic pressure.

‘Exceptionally Low’

He predicts the Fed will extend its pledge to keep its benchmark rate at “exceptionally low levels” into 2015 and will continue its Operation Twist program to bring down long-term rates beyond the scheduled completion this month.

Industrial Data

Industrial output in China, the world’s biggest producer of steel and cement, probably rose 9.8 percent last month from a year earlier, close to the slowest pace in three years, according to the median estimate in a Bloomberg News survey of 27 economists ahead of a report due June 9.

’Limited’ Impact

Still, “we have to be aware that the context is one where you have liquidity constraints and tensions in financial markets,” he said after keeping rates on hold. “Price signals in this situation have a relatively limited immediate effect.”

Accommodation ‘Scope’

“Scope remains for the FOMC to provide further policy accommodation,” Yellen said in a Boston speech. “It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.”

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