In a coordinated fashion, more than 18 central banks worldwide have or plan to cut interest rates, sparking a domino effect of monetary easing. It’s been 10 years since the world has seen central planners orchestrate such harmonization in an attempt to save the economy from a deep recession.
A Large Number of Central Banks Slash Interest Rates
Economists have been saying for a while now that the global economy is headed for a severe wakeup call that could be worse than 2008’s financial crisis. The news started heating up at the beginning of 2019 and more than half of U.S. economists from the National Association for Business Economics (NABE) said they believe an economic downturn is coming by 2020. Financial forecasters think in the midst of a macroeconomic storm from elections, trade wars between the U.S. and China, and a no-deal Brexit that it’s only a matter of time. Tumultuous geopolitical events have caused the world’s central banks to awaken from their slumber and start slashing interest rates. As the end of the year draws near, many central banks have started a rate cut frenzy.
Usually, when the economy is consistent and considered ‘strong,’ central banks keep interest rates higher. On the other hand, when the economy doesn’t look so hot, central banks cut rates so smaller financial institutions can borrow at a better rate. The concept is derived from Keynesian economics, the economic theory of total spending in order to stave off inflation. The goal of interest rate cuts is so the smaller hive of banks below the central banks can give the savings from better rates to consumers.