What's going on?
As we noted in our Weekly Preview, this is a huge week for central bank meetings (the US and Japanese central banks both meet on Wednesday). So it’s particularly noteworthy to hear a stark warning from the world’s umbrella central bank: “central banks have been overburdened for far too long.” (tweet this)
What does this mean?
The Bank for International Settlements (BIS) is an international financial institution that acts as the bank for central banks (yes, even they need a bank…). In its most recent quarterly report, the BIS made some rather blunt assessments of market conditions as it called the recent rally “more stick than carrot, more push than pull, more frustration than joy.” It believes that markets have become dependent on central bank policies (e.g. historically low interest rates) and that new policies must be enacted by governments in order to create “robust, balanced and sustainable” economic growth.
Why should I care?
The bigger picture: Like many central bankers, the BIS wants increased government spending and economic reform.
In a major report released in June, the BIS said governments in developed countries should increase government spending in the short-term in order to give the global economy a boost. It also said that it was even more important that “structural reforms” take place (things like being less reliant on borrowing to fuel economic growth and encouraging entrepreneurship and other activities that foster innovation).
For the markets: The warning is pretty darn clear.
Big, Swiss-based financial institutions are rarely so blunt: central banks are propelling markets and “it’s becoming increasingly evident that central banks have been overburdened for far too long.” Either someone else takes over, or the global economy is in trouble.