Investors and the financial markets are questioning the ability of central banks' stimuli to revitalize global economies, despite promises to do whatever it takes and increasingly unconventional and unprecedented actions.
Since the 2008 financial crisis, central banks around the world have introduced multiple rounds of quantitative easing and other monetary policies. Weighing on the minds of investors and financial markets are recent European Central Bank and Bank of Japan moves to push interest rates further into negative territory; the Federal Reserve's reticence to further tighten the economy; and the threat of a U.K. exit from the European Union in a referendum this June, which sources warned could lead to further QE from the Bank of England.
While there is evidence that policies can deliver — asset prices rise, currencies depreciate, spending recovers and unemployment falls — questions remain about the ability to reinflate economies, and the efficacy of central bank action.
“The sort of impact and the half-life (of reactions) seems to be diminishing,” said David Riley, head of credit strategy at BlueBay Asset Management LLP in London. “It does seem to be a bit of a cycle where central banks are having to pull more and more rabbits from the hat, just to keep the applause going — which is tending to fall away more and more quickly.”