This article originally appeared in WSJ Pro Central Banking.
When central bankers and finance ministers from around the world convene in Washington this week for the spring meetings of the International Monetary Fund and World Bank, there’ll be three big themes in the air: Trade, technology and trust.
Trade, of course, is on everyone’s mind for obvious reasons. For central bankers, the question is whether President Donald Trump’s tough talk on trade will lead to actions here and abroad that’ll disrupt an otherwise promising global economic outlook – and, if so, whether that should influence monetary policy. A “strong majority” of Federal Reserve officials viewed “the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy,” according to the minutes of the Fed’s March policy meeting. Meanwhile, the president’s latest tweets suggest that he may suddenly have realized that higher U.S. interest rates may lead to an appreciation of the U.S. dollar.
Technology poses two big questions for central bankers. First, how should they regard FinTech and cryptocurrencies? Do they threaten financial stability? Are current regulatory regimes suited for these new technologies? And do the changes in the technology of finance change the way monetary policy is transmitted to the economy? The second question is even bigger: How will artificial intelligence and related technologies change the economy? Will they increase productivity? Will they produce a golden age of growth or a dysfunctional era of displaced workers? How does AI influence projections of the long-term natural equilibrium interest rate?
And then there is trust. The latest survey data from the Organization for Economic Cooperation and Development documents the decline in public trust in government around the world.
International Monetary Fund Managing Director Christine Lagarde warns that the multilateral “system of rules and shared responsibility is now in danger of being torn apart.” Respect for technocrats who make policy based on facts and analysis is eroding, a challenge to central bankers whose independence from the political process depends on public confidence that they are both competent and acting in the interests of the whole economy.
The economic weather right now is sunny – and that is surely welcome. But there are some dark clouds on the horizon.